Financial markets largely shrugged off fears sparked by last month’s terrorist attacks in Paris. Within the first few trading days after the attacks, European stocks were up, while US equities had their best day in a month just days after the attacks.
The market rally is somewhat of a surprise, given that terrorist attacks historically have caused stocks to tank. In the first trading week after the 9/11 terrorist attacks in 2001, the S&P 500 index dropped more than 7 percent. One week after the Madrid train bombings in March 2004, Spain’s stock market was down more than 3 percent.
However, economists say the commercial impact of terrorist attacks tends to be temporary and minor. This proved to be true after 9/11 and Madrid as well, despite the initial market shocks.
Peter Praet, the European Central Bank’s chief economist, said: “It’s clear these sort of events do not help restoring confidence in the recovery, so this is something we will watch.”
However, he added: “Usually these sorts of events have a transitory effect on the economy, so this is not a reason to change the way we see the evolution of the European economy.”
Following the Paris attacks, market sources had feared the worst, and there were reports of a possible short-term slowdown in the flow of capital to Paris, especially in the retail, hospitality and leisure sectors as investors pause over concerns about the impact of terrorism on consumer spending. But, property professionals told PERE that over the medium term, the impact is not going to be material.
France is the world’s most popular tourist destination, and Paris shopping and sightseeing understandably went quiet in the immediate aftermath of the attacks, with many shops and tourist destinations closing for a few days. In fact, with tourism representing about 8 percent of the French economy, some worry that the retail, hospitality and leisure sectors will suffer if fear of additional attacks keeps foreign visitors away and makes households reluctant to spend.
The attacks will also make property ownership more expensive. For instance, in the immediate aftermath of 9/11, commercial property owners were severely constrained in their ability to purchase adequate insurance policies for terrorism coverage at affordable prices, according to a whitepaper from the Insurance Information Institute.
Yet, real estate practitioners said they do not expect the growing threat of global terrorism to impact the property markets. One global real estate investment manager with exposure to Paris said the attacks, and the threat of future acts of terrorism, will not affect how his firm allocates capital or underwrites investments.
He said property investing is a long-term play and Paris is a fixture of any developed pan-European investment strategy. The French capital city attracts the majority of the nation’s institutional real estate investment, so it will always be a location where real estate investors will look to deploy capital, as long as the city’s risk-return dynamics work for them, he added.
At the moment, the Paris market is seen as a relatively expensive market for core assets, and with many strong domestic real estate players in action, it is often seen as a market where investors have difficulty accessing assets of institutional quality. This is not likely to change on the back of last week’s atrocities. Investors are unlikely to pull out of a deal in Paris even now.
“If we were contracting on an asset right now in Paris, would that impact our investment decision making? I suspect not,” said the global fund manager.
And as Khaled Kudsi, senior managing director at Northwood Investors, put it at NYU’s Capital Markets in Real Estate Conference: “As it relates to those events, I think it’s tragic but we have to keep moving, we have to keep going. Otherwise these people, these terrorists will stop life. That’s the real tragedy at that point. It’s not out of mind, but we do have to move on.”