'Sick men of Europe' blossom into outperformers - RICS

Spain, Portugal and Ireland - dubbed the sick men of Europe during the Global Financial Crisis - have become the star performers in the eurozone recovery and this is fuelling the revival in their real estate markets.

This is one of the main findings of a new report published by the Royal Institutional of Chartered Surveyors (RICS) on the outlook for Europe's real estate markets.

The report explores the recent improvement in conditions and the new trends in these markets looking at 2016 and beyond. Following an extended period of adjustment, the three economies of Spain, Portugal and Ireland are now leading the euro area recovery. Their economic progress has become a bright spot in the comparably weak overall euro area, particularly during a time of widespread doubt surrounding the health of the global economy.

According to RICS, the reversal in fortunes throughout Portugal, Ireland and Spain has in part been driven by material improvements in competitiveness. The relatively strength of the recovery in these three European markets has started to attract the attention of international investors, fueling a revival in their real estate markets.

Investment volumes
In the commercial sector, investment volumes grew roughly fivefold in each market over the last two years and the supply of property for sale has since declined in Ireland and Portugal, according to RICS data, while in Spain it has stopped rising and has stabilised. As a result, commercial real estate is expected to deliver strong returns with further growth in capital values (especially in the office sector) and rents in all markets over the next 12 months.

In the residential sector, the Portuguese housing market is staging a turnaround with activity consistency improving, after nearly four years of great difficulties. According to the RICS/Ci Portuguese housing survey, sales and prices will continue to rise at a steady pace over the medium term. This turnaround is similar to that found in Spain, where the official price index shows that prices have started to recover modestly over the last 12 months. However, RICS reports that further support will be needed in both markets from the labour market, as well as the upturn of the global economy to consolidate this recovery.

On the contrary, the housing market in Ireland has raced ahead, fuelling fears among some that it is becoming overheated again, as house prices have increased by 33% since 2013. Nevertheless, the annual rate of house price inflation has eased during the last two quarters and is currently running at 9% and is expected to decline.