Europe’s major economies are bracing themselves for a triple hit of slowing growth, ongoing trade wars and Brexit uncertainty.
For real estate investors, Europe still remains an attractive home for global capital, compared with other parts of the world. But after more than 10 years in the current cycle – and at a time of record dry powder – questions are increasingly being asked around how much longer it can run, and whether the European Central Bank’s latest stimulus programme will prolong the cycle further.
David Rea, chief economist for EMEA at JLL, gives his outlook on the big topics facing Europe’s economies going into 2020.
How do you think the current cycle will play out?
The current cycle is different to those that have come before – for one it’s extended in duration and it’s also been fuelled by quantitative easing that’s pushed down the yields available in other asset classes making real estate a more attractive relative proposition.
As the European Central Bank restarts quantitative easing next month, it could further prolong the cycle. How long for is hard to predict, especially as this latest round of QE has no end date. Higher priced markets, such as London and Paris, could become even more expensive.
Of course, the cycle will come to an end at some point – the big questions are when and how. Booms don’t die of old age but are killed off by policy errors or by shocks, such as oil price jumps and banking collapses.
For real estate investors, the story so far has been about the appeal of property capable of offering returns amid the incessant hunt for yield. But we could start to see investors increasingly prioritise safety rather than yield. Politically and economically stable markets, such as the Nordics, are well-positioned to take advantage of that. Prime real estate within major European capital cities could also stand to benefit.
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