EUROZONE: Don’t blink

In mid-June PERE invited the industry to London’s Marriott Grosvenor Square hotel to examine the critical factors, trends and opportunities affecting investment in the region.

One of the most pressing concerns addressed at the conference was the potential ramifications of the myriad geopolitical issues the continent faces.

One question on everybody’s lips was: will the UK choose to remain a member of the EU? The threat of a ‘Brexit’ became real in the wake of the UK’s general election in May, which saw the Conservative party take an unexpected majority. The new government has pledged an in or out referendum on EU membership by 2017 and the post-election signals from Downing Street suggest it could be held as early as 2016.

Then there was the much more urgent possibility of Greece defaulting and leaving the euro. At press time, a deal was said to be nearing, but the PERE Summit: Europe was held at a time when prospects looked bleaker. The country was flirting with defaulting on a €1.6 billion IMF loan by June 30, and risking crashing out of the single currency and possibly the EU. The Eurozone’s top official, Jeroen Dijsselbloem, said Greece’s proposals to end deadlock on its debt crisis were a positive step, but at press time a Greek deal had still not been agreed.

That there is no clear and apparent resolution to the ongoing crisis and political instability in the Ukraine has also been causing discomfort for some real estate investors. One fund manager active in Central and Eastern Europe says he suspected investors and managers would be reluctant to put large amounts of capital towards the Ukraine due to the perception of greater financial and regulatory risks.

Perhaps even more importantly was the effect of the significant fiscal stimulus being employed by almost every major central bank, leading to all-time low interest rate levels. These will eventually increase but no-one is sure when, and according to an audience poll at the conference, 31 percent found rising interest rates to be the biggest risk out of them all.

Yet, despite the threat of these geopolitical factors the PERE Europe Summit chairman, LaSalle Investment Management’s chief executive, Jeff Jacobson, said the industry just had to live with the risk and uncertainty. Of course, you do not ignore such factors, but you cannot get too hung up about them either.

Backing up Jacobson’s view with some hard facts was Neil Blake, head of EMEA & UK Research at CBRE, who showed that generally speaking, geopolitical events have very little impact on the economic cycle of the US or any other country. At the conference, Blake presented a chart that suggested how single, large geopolitical events, including acts of terrorism, historically do not indicate how real estate as an asset class will perform.

It’s also worth noting that Europe comprises a mix of markets, each with its own specific set of opportunities when it comes to property investing. One fund manager said he has been adjusting, almost on a quarterly basis, his strategy based on research on each of these markets and the opportunities that arose from the variations in each market.

And, if more fund managers use their experience, operate with discipline, and perhaps most importantly act using common-sense there is no reason why these geopolitical risks would derail European real estate.