Decision sustains real estate’s appeal to investors and props up Eurozone rental growth
Today’s decision by the European Central Bank to extend its quantitative easing programme will sustain commercial real estate’s appeal to investors by keeping Eurozone interest rates and bond yields at record low/negative levels, according to Cushman & Wakefield. However, the most attractive opportunities are likely to be found outside core Eurozone markets where yields have already fallen to pre-crisis lows or below them.
The ECB has cut its deposit rate to -0.3% from -0.2%, and has extended its QE programme of asset purchases by six months, to at least March 2017.
Some of the additional money the ECB is pumping into the economy will find its way into real estate. Combined with strong investor interest and capital targeting the sector, this will keep prime yields under downward pressure moving into 2016, particularly outside of core markets in France and Germany. Moreover, with rates set to remain lower for longer, Eurozone real estate will continue to be attractive to multi-asset investors.
Fergus Hicks, Associate Director at Cushman & Wakefield, said: “The ECB is clearly worried about the threat of deflation to the Eurozone and is upping its efforts to stave it off. We think that QE extension is positive news for real estate. Some of the money will eventually find its way into commercial property, which continues to offer attractive yield spreads to investors, while more QE should also bolster rental growth prospects by supporting the economy.”
Nigel Almond, Director at Cushman & Wakefield, said: “The extension of the QE programme will help to maintain the current record demand for commercial real estate investment across Europe. The lower-for-longer interest rate environment, especially across the continent, will sustain the appeal of Eurozone real estate and maintain downward pressure on yields. However, we see the most attractive opportunities are to be found outside the larger core markets of France in Germany, with Benelux, selected CEE markets, Italy and Spain likely beneficiaries. We also see demand continuing to shift into secondary cities and alternative sectors as competition remains intense.”
The ECB’s decision does put it sharply at odds with the US Federal Reserve, which is widely expected to raise rates this month, and the Bank of England, which is expected to start raising rates next year.
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