What are the underlying drivers behind the profit decline and are they temporary or structural?

Fundamental drivers:

European Property Holdings (EPH) flagged a year‑on‑year profit drop for the first half of 2025. The primary levers are a softening rental market across its core office and mixed‑use assets, reflected in lower lease‑rate escalations and higher vacancy ratios as tenants reassess space needs after the post‑COVID “flex‑office” trend. In parallel, rising financing costs – Euro‑area rates have risen 150‑200 bp since the start of 2024 – have amplified interest‑expense headwinds, while the company’s relatively high leverage (≈ 70 % net debt/EBITDA) magnifies the impact. Finally, regulatory pressure on rent controls in several Western European jurisdictions and a slowdown in new development pipelines have limited upside. These factors are largely structural: the shift toward hybrid working, tighter credit conditions and the evolving regulatory landscape will likely persist beyond a single reporting period. The only temporary element is the near‑term financing‑cost spike, which could ease if rates plateau later in 2025.

Market and trading implications:

The profit warning has already depressed EPH’s share price, which is now testing a technical support zone around €0.62–0.65 after a 12 % drop since the announcement. Volume remains elevated, suggesting the market is pricing in further downside. Unless the company signals a credible asset‑sale or refinancing plan that could lift earnings, the bearish bias is justified. Traders could look to short the stock on a break below the €0.60 support with a target near €0.48 (previous low in Q4‑2023), while placing a stop just above the €0.66 resistance to limit upside risk. Conversely, a long‑only position would only be justified if a catalyst emerges—e.g., a sizable asset disposal, a strategic pivot to residential or logistics exposure, or evidence that the rate‑rise environment is stabilising—allowing a retest of the €0.75–0.80 range. In summary, the profit decline is driven by structural market shifts with a minor temporary financing‑cost component, and the current technical picture supports a short‑biased stance pending a concrete turnaround catalyst.