Real Estate Convictions Europe : 3rd quarter 2021
In a world dominated by uncertainty, the recovery in the global economy continues.
With the on-going vaccination of the general population and booster campaigns remaining a strategic priority, to avoid the introduction of new health restrictions that would deteriorate growth in late 2021 and early 2022, the deterioration of short-term prospects has come from China. Although the financial risks around Chinese developer Evergrande, with its $260 billion of debt, are not likely to cause a major financial crisis in China according to specialist commentators, the weakness of real estate construction has called into question the country’s short-term economic prospects. This has been exacerbated by electricity shortages and reductions in production. Against this background, and despite the fact that growth prospects remain strong, they have been downgraded (to 5.7% in 2021 and 4.5% in 2022).
Eurozone growth firmed up in the third quarter. However, a fourth-quarter slowdown can not be ruled out. Despite continued uncertainties relating to vaccination strategies in each European country, Eurozone growth is likely to remain on a good track in 2021 (+5.0%) and 2022 (+4.5%) thanks to the monetary and fiscal stimulus, the mobilisation of savings built up by households during the crisis, and a labour market that, paradoxically, is looking strong. On a single country basis, whilst they are all moving in the same direction, the pace of travel is diverging. GDP growth in France is expected at 6.2% in 2021 and 4.2% in 2022, followed by Italy (6.2% and 4.8% respectively), Belgium (5.8% and 3.2%), Spain (5.2% and 6.2%), Portugal (4.2% and 5.3%), the Netherlands (4.2% and 3.5%) and Germany (2.5% and 4.5%).
The Eurozone has been affected by high inflation in the third quarter of 2021. For the ECB, this was caused by temporary factors and it intends to maintain its stance, with an accommodating monetary policy. Inflation hit 3.4% in September, with core inflation (excluding energy and commodities in particular) of 1.9%. Inflation forecasts have been shifted upwards, mainly in response to higher energy prices. The CPI (consumer price index) in the Eurozone is likely to climb towards 4% over the next few months and is expected to be 2.5% for 2021 as a whole. The ‘hawks’ on the ECB Council might use this to push for a swifter-than-planned reduction in asset purchasing. This could have an effect on Quantitative Easing, but economists generally believe that long-term policy rates will remain at low levels (around 0.1%) for the rest of 2021. This situation has already resulted in a rise in short-term interest rates in the Eurozone’s most indebted countries.
With €175 billion invested over nine months in 2021 (up 7% year-on-year), the European commercial real estate market1 has seen a return to growth. Concerned by economic and financial risks, investors have continued to pursue strategies of acquiring well-located assets with solid tenants. By country, investment volumes reached €43 billion in Germany (up 1% over a year), €19 billion in France (-17%), €10 billion (-32%) in the Netherlands and Belgium, €7 billion in Spain (+15%) and €6 billion in Italy (+7%). After a period of correction at the beginning of the crisis, yields have been stable overall across all assets classes; the third quarter of 2021 nevertheless saw a compression in returns for the most sought-after asset types.
1 Commercial real estate refers to office, retail, logistics, service and residential real estate for institutional investors
Sources for figures: CBRE, FMI, RCA, Oxford Economics.
With a university education in local economic development, Daniel While began his career as business establishment consultant to local authorities. In 2006, he joined the Institut de l’Epargne immobilière et Foncière as analyst, and specialised in the world of unlisted real estate funds (SCPIs and OPCIs for France).
He is co-author of the book Les OPCI published by Delmas (September 2008). He joined Primonial REIM in 2017, where he held the position of Development Director, then Research & Strategy Director from 2019.
Henry-Aurélien Natter joined Primonial REIM as Research Manager in January 2018. He has the mission of developing the analyses of the Research & Strategy Department on the real estate markets, the economy and capital in France and in Europe.
Henry-Aurélien Natter began his career at Les Echos Etudes (formerly Eurostaf), then at C&W (formerly DTZ), and lastly at BNP PRE, where he acquired solid and varied experience in real estate research, strategy and finance. He is qualified with an AES degree in Business Management, a Masters Decree in management and SME management, and an International Master in commerce and marketing.
After a successful internship in Primonial REIM France's Research and Strategy team, Adrien Isidore joined the team as an economist-statistician in late 2020. Adrien holds a Master's degree in Economics and Statistics from Panthéon-Assas.
Adrien Isidore decided to become an economist after an exchange program in Australia during which he worked in international research groups on various projects, giving him a taste for research. He also holds a bachelor's degree in economics and a university degree in mathematics and finance. His role is to propose innovative statistical tools and to write studies on different countries while providing support in the structuring of the department at the European level.
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