While trade tensions seemed to ease between the United States and China, it is a virus, COVID-19, that has destabilised the entire global economy for 2020.
With the number of infected people steadily rising and quarantine measures for 3.9 billion people, this foreshadows the scale of the crisis that many countries will have to face. For Thierry Breton, European Commissioner for the Internal Market, «this crisis is accelerating changes in the world, in our way of living and producing, in the age of the digitisation of society». While this crisis does not prefigure the end of globalisation, according to the Commissioner, it will force us to rethink global value chains and the relocation of certain critical industries, particularly in the field of healthcare.
The coronavirus pandemic comes at a time when signs of a slowdown in economic growth had been appearing since the end of 2019. The health crisis will therefore inflict a deep recession on the global economy in the first half of 2020. According to the forecasting institute Oxford Economics, this situation is expected to result in a 0% GDP growth for the year as a whole at a global level. As for the eurozone, it is heading for a sharp recession, pushing GDP growth forecasts for 2020 to -2.2% (compared with +1.0% at the end of 2019), before a strong rebound to 3.9% in 2021. This «V» scenario assumes that most of the impact will be concentrated in the first half of the year, before a gradual resumption of expansion, the lifting of lockdown measures and the implementation of monetary and fiscal stimulus tools. How the epidemic plays out will be decisive in determining the ultimate economic damage, and post-crisis management will be decisive in ensuring a proper recovery. In 2020, all the main eurozone countries will be heavily impacted: the Netherlands -1.1%, Spain -1.9%, Germany -2.1%, France -3.1% and Italy -3.5%.
As anxiety and uncertainty gripped the stock markets, the G20 governments committed to a «common front» against the coronavirus pandemic. They are reportedly ready to inject $5 trillion into the global economy. On the other hand, the US and European central banks announced that they were ready to intervene «without limit» to ensure the proper functioning of capital markets and the banking sector. Accordingly, governments should be able to continue to borrow at an interest rate close to zero or at a negative interest rate in 2020, i.e. a level similar to 2019. This policy of low borrowing rates will support the real estate risk premium.
With nearly €300 billion of investment in 2019 (+4% year-on-year), including €197 billion for the eurozone alone (+7%), the European commercial real estate market* once again attracted capital in 2019. Germany (€69.4 billion in 2019, stable year-on-year) and France (€41.6 billion in 2019, +9%) were able to attract capital, while the United Kingdom crystallised a certain amount of caution among investors due to Brexit (€54.6 billion in 2019, -16%). In the first quarter of 2020, the first figures for the European commercial real estate market show a volume of around €46 billion in Europe, down 15% year-on-year, but in line with the average over the last 10 years. Overall, prime office yields continued to experience compression for the most core assets and remained stable for core retail premises at street level. However, with a decrease in investment volumes in 2020 and the return of «risk aversion» strategies, a new hierarchy of yields is to be expected.
Sources for figures: CBRE, RCA, Oxford Economics
* Commercial real estate refers to office, retail, logistics, service and residential real estate for institutional investors.
The team
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.
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