QE to amplify European real estate markets

Quantitative easing by the European Central Bank could have a “substantial” impact on property markets.

European property could benefit from the measures, according to advisory firm Cushman & Wakefield. Head of EMEA investment and strategy, David Hutchings, said a successful QE programme could have a substantial impact on property markets, with “even more demand” diverted to the market.

The ECB today announced details of a €1.1trn quantitative easing programme. ECB president Mario Draghi confirmed the central bank would start a monthly €60bn programme in March, running at least until September next year.

“As a result, yields are set to fall more than expected and volumes will be pushed further back towards record levels,” Hutchings said.

Cushman & Wakefield predicts that, without QE, the market would be expecting a 5-10% increase in European investment volumes this year, alongside a 20-30bps drop in prime yields. But with a successful QE package – delivering lower for longer borrowing costs, more growth and some reform – the forecast is increased to a 40-70bps fall in yields and a 20% plus jump in property trading.

“Committed reformers like Spain will be most rewarded with increased activity and inward investment,” the advisory firm said.

CBRE Global Investors said the ECB’s measures signal a “commitment to growth and unity”.

Sabina Kalyan, global chief economist, said the QE programme adds “further momentum to the strong and broad recovery in European real estate capital markets that we have seen developing over the past 18 months”.

“By keeping bond yields low, the QE programme will affirm the attraction of property as a higher yielding asset class offering an attractive income premium over bonds,” Kalyan said. 

“We should therefore see a continuation of the aggressive investor interest in good quality assets with long leases to good quality tenants, and for prime yields to move even lower.”

The QE programme, Klayan added, puts a “floor under the euro-zone economic recovery, reassuring investors that they should continue to see a slow improvement in occupier market fundamentals”.

The capital market impact on property pricing is, she added, likely to be larger than the positive boost to occupier market demand.

“What this really means is that investors will be facing capital appreciation driven by yield movements – rather than rental value growth in the near term,” Kalyan said.

Rental recovery would come through later, as “improved corporate confidence feeds into job creation and improved occupier demand”.

In Denmark, where QE could put pressure on the Danish krone to decouple from the euro in the way the Swiss franc recently parted company from the pan-European currency, today’s measures could have a positive effect on property.

The krone, has been pegged since 1982 to the German mark and subsequently to the euro.

Peter Winther, managing director and chief executive of Danish advisory firm Sadolin & Albæk, said QE could “further strengthen the Danish investment property market”.

“We do not believe that the Danish krone will share the same destiny as the Swiss franc,” Winther said.

Danmarks Nationalbank, the Danish central bank, is, he said, “extremely committed to maintaining the value of the Danish krone against the euro within the 2.25% fluctuation band, introduced more than 30 years ago”.

“A possible massive capital inflow into Denmark is therefore likely to merely drive down interest rates and make the terms of property financing even more competitive,” he added.