16 July 2018

European Real Estate is now more attractive for Global Investors

11 June 15 | Joe Valente
Joe Valente



Developer - GREECE

Pepper Hellas

Consultant - GREECE


Demand for European real estate from global investors, especially dollar denominated investors is set to increase due to the recent decline in the value of the euro.


Joe Valente, European head of research for real estate at JP Morgan Asset Management, explained in that a further decline in the euro may be on the cards.

The main European markets continue to be regarded as a safe haven for many international investors, Valente said. ‘Property yields are still substantially higher than in most real estate markets around the world. Interest rates are also lower in the Eurozone which allows high cash-on-cash returns. The trend going forward is thus for more investment in Europe. This should support capital values, both at the prime end of the market as well further up the risk curve.’

Euro’s downward trend is likely to continue...

Valente noted that the European economy has been stagnating for most of the past five years.

‘It did bounce back in 2010, but economic growth failed to take hold in the years that followed. Germany's GDP growth was a meagre 1,5pct from 2011 to 2014.

Meanwhile, Southern Europe came close to bankrupting the whole euro area with Portugal, Greece, Ireland and Spain all requiring substantial bailouts. There is still substantial downside risk going forward and the Eurozone might yet disappoint, which would inevitably lead to a further depreciation of the euro.

It is highly likely that the sort of scenario played out in 1999 (when eurusd fall below parity prior to recovering above) will be mirrored over the next few years, Valente predicted. ‘In the short to medium term the euro is likely to experience a period of undervaluation, perhaps falling to $0,80-0,90 before recovering to at least its equilibrium rate of $1,20.’

Good news for European Economy...

A weaker euro is inherently good news for the European economy, Valente continued.

‘The Eurozone can afford to attract some import-led inflation given the low level of inflation in Europe. A lower exchange rate should also support net exports and drive foreign direct investment in Europe.

However, the euro's decline to date is unlikely to provide a real boost to economies in Southern Europe which arguably need a much bigger currency depreciation to become competitive again.’

German, French and Italian exports to be favored...

On the other hand, a lower euro would ‘undoubtedly’ help Germany's economy which is much more reliant on exports outside the Eurozone, and therefore, more sensitive to changes in foreign exchange rates, he added. ‘It should also provide assistance to French and Italian exports which have fared rather poorly over the past 10 years in part because of the strength of the euro.’

EU Property Market will eventually get a strong boost...

On the whole, however, property fundamentals are unlikely to be affected by the recent decline in the euro, Valente said.

‘Stronger economic growth, if it materialises, will take time to feed through to the property market. Over the medium term, however, it could have a substantial effect on occupier demand and thus rental growth across all sectors particularly in Germany.’


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