Macro downside risks fail to depress sentiment in European real estate

A report from RICS based on professional feedback to its latest quarterly Global Commercial Property Monitor says that Europe continued to show strongest momentum of all global real estate markets in third quarter, with German cities, Netherlands, Portugal and some central European cities still recording upbeat occupier and investor feedback.

The study suggests real estate markets across much of the globe remain firm, with European markets leading the way - despite new trends and increasing macro risks.

"Rising trade tensions as protectionist rhetoric has progressed into an outright use of tariffs, a reversal of capital flows to emerging markets, and heightened political risks all threaten to contribute towards a marked slowing in growth momentum as 2019 approaches," RICS said. "Alongside this, policymakers in a number of countries have either given consideration, or actually taken further steps towards unwinding the still highly accommodating monetary stance.”

However general feedback, "suggests that sentiment in the real estate world, in general, remains fairly solid."

Europe continues to show strongest momentum, helped by the stance of the European Central Bank, whose key policy interest rate remains at zero though quantitative easing program is set to run only until December. "German cities such as Berlin, Frankfurt and Munich are still recording upbeat feedback on both occupier and investor segments of the market as is the Netherlands, Portugal and some CEE markets."

RICS Economist Tarrant Parsons commented: "Feedback from across many parts of Europe continues to signal that market activity retains solid momentum, even if growth is a little more modest compared to recent years in some cases. Sentiment in the Netherlands, Portugal and several CEE countries, in particular, remains amongst the strongest on a global comparison. Indeed, respondents in each of these markets have returned a firmly positive assessment with regards to the outlook for capital values and rents over the coming twelve months."

But he added: "That said, the growing shift towards online shopping at the expense of instore sales appears to be increasingly weighing on the outlook for the retail sector in certain parts of Europe. Given this issue is structural rather than cyclical, it seems set to create more of a pressure point over the coming years."

European cities are showing the most positive trends even though the picture is a little more nuanced when it comes to the forward-looking measures, he said.

"It is worth noting the imminent ending of the quantitative easing program at the same time as some key macro indicators appear to be flagging. Significantly, the London readings remain fairly flat although investor enquiries appear to holding up for now, despite ongoing concerns surrounding the issue of Brexit." The additional questions show that a growing proportion of respondents expect to see some business relocate to other centres in Europe over the next couple of years, although this clearly remains a very fluid situation.