French, German real estate markets set to benefit from Brexit
Both countries’ office markets, especially, might be among big winners thanks to Britain’s decision to leave the European Union
The constantly evolving impact that Brexit might have might have on attracting overseas investmentis is great news for Britain’s rival French and German real estate markets, says Philip Charls, chief executive of the European Public Real Estate Association (EPRA).
The non-profit association representing Europe’s publicly listed property companies has been active in Asia in the recent three years after seeing surging capital flows from all over the region to other parts of the world, including Europe.
Although international investors tend to turn a bit more cautious after a year of black swan events (Brexit then Trump), they are actually changing their strategy: from going straight to English-speaking countries, usually exclusively UK, to focus on places with a stronger economy, such as France and Germany, said.
Both countries’ office markets, especially, might be among big winners thanks to Brexit.
One serious consequence of leaving the EU is that it means UK financial institutions will lose their so-called “passporting” privileges, that allow their products to be sold to other EU countries without restrictions.
“The impact on financial institutions is big. Imagine a Japanese bank that has an office in London and wants to sell those products in other EU countries. They might have to move their activities to other European locations, most likely Paris or Frankfurt,” said Charls.
The demand for office buildings is already growing in both cities post-Brexit, benefiting from the fact investors find both sites are undervalued in comparison to the UK capital, Charls said — a trend he expects to continue for the next couple of years.
In Paris a lot of office space is being redeveloped and its economy is improving, Charls said. On top of that, the French government has already started promotional campaigns to woo investment from London, and have plans to provide favourable tax treatment for people relocating from the UK capital.
Brexit-hit UK has slipped to sixth below France in fifth, in the World Economic League Table for 2017, which tracks the size of economies around the world and forecasts how this might change in the next 15 years.
With overall office stock above 50 million square metres, the Paris Region is the largest office market in Europe and third largest in the world, behind New York and Tokyo.
Germany too, with economic growth of 1.9 per cent in 2016, beating market estimates and its fastest pace in five years, is also likely to lure UK workers, especially to its financial hub, Frankfurt.
In October last year, Reuters reported that China’s sovereign wealth fund CIC acquired German residential property group BGP in a 1.1 billion euros deal – a rare large real estate investment in the country by China.
Charls expects Europe’s property market overall, however, to show slower growth in 2017 as investors remain cautious, but added the US interest rate rise is unlikely to have any immediate influence on the sector.
“We are usually 18 months behind the US,” he said, adding that the negative effect can partially be offset by increased rent income.
Political uncertainties, however, also remain high in Europe given several key votes are on the way. France is choosing a new president, Germany will choose its next leader, and the The Netherlands goes to the polls.
“But I don’t think you will see another Brexit happening,” Charls said. “Countries have been too shocked by what happened after the British vote.”