How Europe is navigating a potential second wave

Real estate investors in Europe are faced with the prospect of more uncertainty during the winter months

October 07, 2020

As the COVID-19 pandemic shows no signs of slowing, Europe’s major economies are braced for a bumpy road to recovery, complicating the decision-making process for real estate investors looking for relatively safe markets to deploy their capital. 

But economic forecasts across markets are continuing to contrast and diverge; Germany may have avoided a second wave while planning for more lockdowns in Spain and the UK is underway.

Navigating this changeable landscape, in addition to geopolitical uncertainty surrounding Brexit, remains a challenge for real estate investors. Against this backdrop of uncertainty, David Rea, EMEA chief economist at JLL, gives his outlook for Europe’s economies in the coming months.

With COVID-19 still raging, does Europe have enough capacity to deal with the economic impact of a second wave?

This crisis has seen the full suite of policy tools called upon. Of course, some major stimulus plans stood out this year – particularly Germany with its unprecedented decision to ends its no deficit, black-zero rule.

The policy response has been omnipresent: governments stepped in, paying employee wages, augmenting business cash reserves, boosting bank balance sheets and legislating against tenant eviction.

The tools used so far have done a seemingly good job of limiting negative outcomes, though not to the extent that was initially hoped.

Now, the most scope governments have is in fiscal policy; the fiscal response far eclipses that of the Global Financial Crisis (GFC) in 2008. The Bank of England has been considering sub-zero interest rates for the first time in its history. Elsewhere in Europe, sub-zero rates are the norm. With short and long-term rates now close to all-time historic low levels, it looks like there is little more that monetary policy makers can do.

Germany, the benchmark bond issuer for the eurozone, plans to take on another €96.2 billion in new debt in 2021. With German bond yields negative, the wider implications for asset allocation will be interesting and could further increase the appeal of real estate as an asset class able to offer superior returns.

How will new lockdown measures impact real estate activity?

The crisis isn’t going away any time soon. As we head into the winter months, Spain and France are in the vanguard, with the UK following behind. It looks like lockdown measures are shifting from indiscriminate national shutdowns, to a localised, city- or regional-level approach. Hopefully, this will reduce the chance of wide, detrimental economic impact, which could be devastating for businesses that were struggling to get their heads above water after the first wave.


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Restrictions on international travel – from outright bans to required quarantine periods – continue to make it difficult for cross-border real estate investors to conduct due diligence. If local restrictions on movement ensue, this could have a detrimental impact on domestic investment activity too.

In the midst of the crisis, the UK is still grappling with Brexit negotiations. How likely is a deal?

A deal is in the interest of both sides, but that does not guarantee that one will be reached. Any UK-EU trade deal is likely to be narrow, shallow and limited. This will still be better than a no deal outcome but will entail negative economic consequences. It’s almost unthinkable that a government would take on the burden of a no deal while grappling with the fallout from COVID-19, creating dual headwinds. 

For UK real estate, Brexit is not the biggest game in town. Favourable foreign exchange movements and low interest rates could make UK property more attractive to international capital. And post-Brexit, the government’s ongoing “levelling up” agenda to rebalance London and the rest of the UK should be positive for the regions and neutral for London. One thing is for sure - this is not the end. Deal or no deal, we have years of continued talks ahead of us.

With continued reduced economic activity, what can signs of an improvement in the region’s economies do for real estate investment?

Firstly, investors may feel better making decisions they had put on hold. Equally, it could bring non-core real estate, such as assets with higher vacancy or in less prime locations, back into the mix longer-term.

Right now, however – and this mainly applies to Europe’s major office markets – there’s a gap opening between safe, long-let core real estate and properties in need of more work. For investors to make that move, countries will need to avoid significant lockdowns and Brexit uncertainty be settled. Regardless of location, Europe’s logistics markets are firmly in vogue and have been since the early days of COVID-19 off the back of growth in grocery chain sales and online sales.

There’s still a great deal of uncertainty, making it difficult to accurately price future revenue streams or indeed, value assets. This unpredictability makes price discovery exceptionally challenging. Markets have not yet corrected, but there is a correction coming. How much of a correction is due remains to be seen.

Contact David Rea

EMEA Chief Economist

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