Speculation about when interest rates will rise in the US and Europe and how this will affect property markets dominated much of the discussion at PropertyEU’s recent Outlook Briefing in Frankfurt.
Speculation about when interest rates will rise in the US and Europe and how this will affect property markets dominated much of the discussion at PropertyEU’s recent Outlook Briefing in Frankfurt.
While some industry leaders such Thilo Wagner, director of property for Europe at TIAA Henderson Real Estate, believe interest rates are not due to go up until 2017 ‘at the earliest’, others believe such a hike may come sooner.
‘I believe the change in interest rate environment will happen much earlier in the US than in Europe – sometime next year, not in 2017,’ said Daniel Ajzensztejn, a partner with law firm Taylor Wessing. ‘The mere fact of interest rates changing in the US will send a signal to other parts of the world. It will mean that the investment climate we have now will definitely end. The question is: when will it end and how will the wall of money react at that point in time? Having had the experience of the financial crisis we think that that will trigger a change in Germany and in Europe.’
Ajzensztejn said markets in Europe were set for what he described as ‘the great months of reassessment’, when US interest rate trends will change on a long-term basis.
That inflection point will be accompanied by asset selling, he predicted. ‘I don’t believe it will be heavy selling because core asset classes in the German market are not superly overvalued – other non-real estate assets will be affected first. Money will still come into Germany following this reassessment so I don’t expect prices will fall sharply. Yield compression will continue but not at the speed we have seen in the last six to nine months.’
On the issue of where most of the new money flowing into Germany will come from in 2015, the consensus view was that the US will be a strong source, particularly in view of the appreciation of the dollar versus the euro. ‘Germany will be a target for US investors and for Asian capital sources and there are also new investors from countries such as Israel,’ said Ajzensztejn.
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