The European real estate market continues to be one of the most popular in the world, yet like other markets, there are several factors that could have a negative impact on future performance. Unfortunately, most of the important reasons don’t have anything to do with the real estate market, but with the political and economic picture. Let’s see what are some of the risks that real estate investors should pay attention at the end of 2019 and 2020.
Brexit- an unsolved issue
According to Knight Frank, an international property consultant, political uncertainty in the UK continues to dominate the sentiment, especially in prime London residential areas, alongside with other developed cities in Germany and France. The end of the summer had seen optimism rising that a deal between the EU and the UK will finally be reached, but Boris Johnson’s decision to call for an election had brought back uncertainty.
Based on the latest polls, neither Conservatives or Labour will be able to obtain a majority, which means there will continue to be a hung parliament. If that will be the final stance, the January Brexit deadline could be extended once again, given that the UK’s Parliament had already voted to amend the deal reached by Johnson with the EU.
Growing geopolitical tensions
Whether we like it or not, China will continue to grow and gradually challenge the US dominance over the upcoming years. Many economists predict we’ll face a global economic decoupling over the next 3 to 5 years, which could have a meaningful impact on the business sector as well. Since Donald Trump became the US President, the Transatlantic relations had weakened, the EU currently aiming to establish closer ties with China. Caught in the middle of conflict between the US and China, Europe could face some uncertain years ahead, especially if we consider that many popular real estate areas are considered to be in a “bubble”.
For the time being, tensions between the US and China had eased, mainly because the US enters into an electoral year. However, slapping tariffs on each other for the past two years had hurt the already fragile global economic development and although risks had diminished now, the prospects for 2020 are negative
Global synchronized slowdown
According to a report published by CBRE in November, global commercial real estate investment volume had flattened in 2019, a slowdown fueled by fewer ultra-large transactions. We had some major deals from Ofir Bar of Aspen Group, ECE Group, Tristan Fund, and other major players, but as compared to 2018, the activity is weaker.
The retail real estate industry had also been weak, due to unaffordable prices in the main European cities. Youth unemployment continues to be elevated and wage growth very small, which means few people afford to buy a house or take a mortgage loan.
A sharper contraction in the real estate sector had been prevented by record-low interest rates, which are not expected to grow anytime soon, given the weak economic expansion that started after the 2008 financial crisis. Economists now claim that we’re in a global synchronized slowdown and as conditions don’t seem to improve into 2020, the trend could continue to head south.
There are certainly many real estate opportunities in Europe, especially in less developed areas (small cities, Eastern European countries, etc.) but despite that, real estate investors should closely monitor macroeconomic and geopolitical developments as they head into 2020. Based on the current conditions, the real estate market is expected to remain flat next year, although some major deals could occur.