Global real estate investors will continue to target Europe despite the market upheaval in the wake of the UK’s vote to exit the EU. That is the firm conviction of the heads of two of Europe’s leading real estate associations.
‘Europe will always be relevant,’ Philip Charls, CEO of the European Public Real Estate Assocation (EPRA) told PropertyEU in an interview. ‘Don’t forget that Europe is the number one trading partner for China. It’s even bigger than the US. There will be a period of uncertainty and investors will make careful choices with regards to countries, sectors and companies. But at the end of the day investors can’t afford to bypass Europe.’
There are various dimensions to the Brexit vote, according to Matthias Thomas, CEO of the European association of investors in non-listed real estate vehicles (INREV). ‘As the head of a European organisation, I’m not a fan of Brexit. I don’t think it’s good for Europe or for Europe’s relative competitiveness. The remaining 27 EU member states need to compete with the likes of the US and China. And they can only be competitive if there is free movement of people, services and goods. There are areas for improvement within the EU on such fronts as migration, the single currency and fiscal union and these deficiencies need to be (urgently) addressed. But I think the overriding concern that the EU faces is its competitiveness relative to other regions.’
According to Thomas, the UK capital will remain a gateway city regardless of Brexit. But, he added, the structure of demand for office space might change if there were limits to freedom of movement of goods, services, capital and people. ‘I don’t think we will see an exodus of companies moving to Frankfurt overnight. But potentially, there may be an impact on EU banking supervisory services based there. They wouldn’t stay there, there would be no point. That might in time weaken London’s position as a financial city.’
Economic repercussions
In that scenario, some European cities will do better than others, Charls said. ‘We will see some very aggressive marketing moves from some cities which would like to present themselves as an alternative to London as a financial centre. But I believe London will remain as a very important global financial hub.’
Charls said Brexit would have further economic repercussions for Europe. 'I think it’s crystal clear that we would all have been better off if the UK had not voted to leave the EU. This is not good news for the stability of the economies on both sides of the Channel. If you look at the big picture, we were not yet out of the long aftermath of the global financial crisis. There were already lots of challenges facing the investment markets generally, for example low interest rates are throwing up huge challenges for pension funds to meet their [future] obligations.’
He added that the Brexit vote lead to further volatility in the market due to the ongoing uncertainties about how the UK will leave Europe. 'But you can look at that in two ways, as a challenge and as an opportunity. The same is true of the lower pound. For some investors that’s good news, for others it’s not so good.’
The good news is also that Europe's listed property sector has come out stronger from the global financial crisis, Charls added. 'The sector was able to refinance itself very well in the depths of the global financial crisis and LTVs are much lower today than they were then. The listed sector is in very good shape.’
Polarising views
In the wake of the Brexit vote, media attention has focused primarily on the political upheaval in the UK and the subsequent financial fallout, Charls noted. 'I really think it’s very sad…people need to remember why the European Union was started in the first place. The EU was initially set up to avoid wars, that’s where its roots lie. I strongly believe that the European project and its single market is the most important protection mechanism against regional conflicts in Europe. It’s very sad if nationalistic groups and extremists blow that vehicle up by polarising views on complex issues such as immigration.’
The EU itself has also been at fault, he added. 'The EU has done the worst possible marketing job…It realised too late that it has failed to sell itself. It forgot to get the message across why it is so important in the first place and why we have to do our best to keep it.’
