EUROZONE: Going Dutch

When Emmanuel Macron romped to victory ahead of Marine Le Pen in last month’s French presidential election, the real estate industry took a collective, almost audible, sigh of relief.

Macron’s overwhelming victory means that populist movements have been resisted in two of Europe’s big five economies, the Netherlands and France. So, given that France, like the Netherlands, had an election outcome that did not appear to the threaten the future of the European Union, it seems reasonable to suggest that its post-election real estate fortunes will emulate those of the Dutch. Unlike the UK, France will not be affected by the uncertainty relating to complex exit negotiations with an EU hellbent on making an example of the want-away Brits.

There were obvious pre-vote similarities between the three nations, with each suffering significant dips in real estate investment volumes in the run-up to their respective elections and referendum. Data from CBRE shows that volumes in France fell from €4.2 billion in Q1 2016 to €3.2 billion in Q1 2017, a drop of around 25 percent quarter-onquarter, and even more when compared to its cyclical peak of €9.2 billion in Q1 2015.

The UK real estate market, however, faltered even after its vote, characterized by redemption runs, 20 percent discounts and the triggering of Brexit clauses. The Dutch market, in comparison, bounced back. Prior to the country’s general election in March, investment volumes in the Netherlands reached €13.5 billion in 2016 which, according to CBRE, was a record high. But the country also endured a difficult first quarter to 2017 – its worst since 2014 – in the run-up to the election.

However, since the vote, which resulted in a defeat for populist Geert Wilders, investment volumes and pricing have returned to normal, with April registering around €1.6 billion of investment, with a further €700 million of deals in the pipeline, according to data from Real Capital Analytics.

Looking forward, former investment banker Macron’s win is widely expected to have a positive effect on the country’s real estate sector. The new president has already made clear his intention to make Paris a rival to Frankfurt and London as Europe’s preeminent post-Brexit city.

Macron’s first port of call, and best prospect of reviving the property industry, will be to simplify the country’s outdated labor laws, tackle its 10 percent unemployment rate and reduce corporate taxes. Stronger economic growth can only benefit the property sector because more jobs will mean more demand for real estate of all types.

It is worth noting that some of the continent’s biggest private equity real estate players had already put their money behind France, even before the election was decided.

AEW Europe’s €400 million Europe City Retail Fund and BlackRock’s €700 million Europe-focused opportunistic vehicle, for example, are targeting investments in Paris and France, while in May, AXA Investment Managers – Real Assets acquired Gramercy’s €1 billion European real estate fund, which is approximately one-third allocated to France. And a string of property firms, such as LaSalle Investment Management, M&G Real Estate and Oxford Properties, have all reportedly backed French real estate in the weeks since the election, although many of these said their focus would be primarily on Paris in the short term and further afield in the longer term.

For now, it seems fears of a ‘Frexit’ have been banished following Macron’s victory. The new French leader, a European Union advocate, is expected to cozy up to Angela Merkel in the coming months and many observers suggest Europe’s new power couple could make UK prime minister Theresa May’s Brexit negotiations considerably more difficult – providing, that is, she wins her own general election this month.

While 2016 was the year that the populist movement took The White House and 10 Downing Street, 2017 has seen the tide pushed back and Europe appears to be wading into calmer waters. The German election in September looms large and Italy is still a concern, but Macron’s victory has brought confidence back to the French, and subsequently European, real estate market following 2016’s turmoil.