Editor’s Choice: Into the unknown

Seldom have politics taken the world so by surprise as in the past year. Not one, but two major events defied all predictions and sent shock waves across global markets: the British public vote to leave the European Union in June and the election of Donald Trump as US president in November.

Both outcomes were a possibility – albeit remote - but few imagined they would actually happen. Faced with the shock reality, and on the threshold of a new year, business and property markets now have to work out strategies which factor in these two 'known unknowns'  (to quote former US defence secretary Donald Rumsfeld).

As one interviewee in the Emerging Trends Europe 2017 survey published by the Urban Land Institute and PwC puts it: 'Never in my career have I had so many risks from a political perspective in so many places at the same time.' Another said about the aftermath of the Brexit vote: 'The difference this time from previous shocks is that business doesn’t know what its trading environment is.'

Politics are top concern

Indeed, nearly 90% of respondents to the ET survey rank international political instability at the top of their list of concerns, and 63% say they are anxious about national stability.

What will Brexit and Trump mean for European property markets in 2017? Because if 2016 was eventful, the coming year promises more of the same with a lot more uncertainty still to come. Negotiations between the UK and EU on Britain's departure are not expected to start in earnest until March when the UK formally triggers the Article 50 exit clause - and after that the process will take another two years. In the US, the new Trump administration takes office in mid-January and its actual policies, rather than just rhetoric, will influence markets.

Are there are other known unknowns lurking on the horizon? National or presidential elections are due to be held in France, Germany and the Netherlands in the next 12 months with polls predicting gains for right-wing populist parties in all three countries. On the macroeconomic front, interest rates and inflation may rise further.

How will all this affect the business environment and property companies' strategies? Which markets and sectors are expected to benefit?  Below is a selection of quotes, ordered by topic, which PropertyEU has collected from interviews and events held throughout the year:

BREXIT

David Inskip, director of EMEA strategy and research, CBRE Global Investors

'Some people have been disappointed by how well the UK has done after Brexit. The opportunists who have swooped down thinking of finding bargains have gone away again. There have been positive net inflows in funds, but no correction and no bargain basement deals.'

Sukhdeep Dillon, senior economist, BNP Paribas Real Estate

'A hard Brexit, meaning no preferential trade agreeements for the UK, some tariffs and a loss of passporting rights, could force institutions to relocate or to scale back their London operations, and this could cause a drop in occupier demand.'

Walter Boettcher, research director UK and EMEA, Colliers International

'Despite a surprise Brexit referendum result at a late stage of the property cycle, there has been no massive pricing correction. Rental growth is stable and there is a lot of activity in London. There is no evidence that foreign investors have stayed away.'

Witsard Schaper, director real estate investments, CPPIB

'Every time Theresa May opens her mouth, the pound goes up, the pound goes down. That’s something all investors are going to have to factor in over the coming months when considering investing in the UK.'

Guy Hands, chairman and CIO of Terra Firma

'People should take a long-term view. One of the big mistakes the Europeans are making is to believe that they can somehow take the financial services business out of London and plonk it in Frankfurt, Paris or Amsterdam. There is no way Paris or Frankfurt will replace London in my lifetime or my children's lifetime.'

TRUMP

Lisa Pendergast, executive director of CREFC

'Whatever you may think of him, the reality is that Trump is very good for our business, for finance and for banks, as Wall Street's reaction to his election shows. There are concerns about some of the things he is suggesting, but we are happy with lower taxes and deregulation.'

Michael Gately, head of real estate research, Barings Bank

'Longer-term, it is unclear how much of Trump's agenda will actually be implemented. In this sense, we’re facing a scenario not unlike June's Brexit vote, and as such, we believe the best approach to investing is to let the initial shock subside and focus on the implications of Trump’s cabinet appointment and policy proposals going forward.'

Walter Boettcher, chief economist, Colliers International

'For commercial property, the key policies that are likely to drive capital flows globally, including both to and from the US, will not be known for some time. Once again, just like after the EU Referendum outcome, we are left with more questions.'

GERMANY - safe haven benefitting from uncertainty and instability in the rest of Europe

Annette Kroger, CEO Allianz Real Estate Germany

'We are seeing increased capital from everywhere coming into Germany, as its status as a safe haven has been further highlighted by Brexit. Lower investment volumes clearly do not reflect demand, only a lack of supply.'

Thomas Beyerle, managing director of Catella Property Valuation

'The German market is blooming, there are massive amounts of capital looking for investment. Transaction volumes have overtaken the UK for the first time since 2012 this year, due to the cooling down of the London market after Brexit.'

Olaf Atja Lemmingson, head of international business, communities and financial markets at Wirtschaftsforderung Frankfurt

'The British government is taking its time and it is a complex situation, but the office sector in Frankfurt will definitely benefit, as it is the city in the best position. It has long had a strong focus on the banking sector and financial service providers, and recently fintech has developed well.'

SPAIN – resurgence of investor interest and test of sentiment towards the eurozone

Marta Cladera, head of portfolio management Iberia, TH Real Estate

'The Spanish market is phenomenal; how we went from the doldrums to everyone knocking on our door. But the interest from both local and international players is still there, the recovery is far from over, and there is more to come in terms of rent increases and yield compression.'

Humphrey White, partner and managing director, Knight Frank Spain

'Spain has gone from being one of the most uncertain countries in Europe to being probably the most stable bet. We are looking at 5% rental increases across the board, which we think are more sustainable than the 10-15% increases you see in Dublin or Vienna. This means healthy, sustainable growth for the next three or four years.'

OUTLOOK GEOPOLITICAL ENVIRONMENT – more elections set to come in Europe over 2017

Sukhdeep Dillon, senior economist at BNP Paribas Real Estate

'The market is still underestimating the chances of other populist overhauls and the impact of the rise of populism across Europe, from Italy to France.'

German fund manager, respondent Emerging Trends Europe survey

'There is a wave of populism in the UK, the US, Italy, Poland and probably Germany, and that is creating uncertainty, not opportunity.'

Jeremy Plummer, CEO EMEA CBRE Global Investors

'Geopolitical issues are bumps in the road, what really matters is the US economic cycle. That’s the number one thing that we need to be worried out – that and interest rate cycles.'

Lorenz Reibling, chairman Taurus Investment

'As in 2007, we're all dancing on a volcano. There are so many factors generating uncertainty in the real estate markets that it’s difficult to be blindly positive about the future.'