Brexit uncertainty hits investor sentiment to Germany's advantage

Brexit uncertainty has impacted on investor sentiment to Germany’s advantage, according to the Emerging Trends in Real Estate Europe 2017, published jointly by the Urban Land Institute (ULI) and PwC.

The UK’s EU referendum outcome has left investors and developers uncertain about the UK’s immediate and medium-term future. The survey found that 90% of industry leaders predict that UK investment and property values will fall over the next 12 months.

ULI and PwC released their findings as the High Court in London ruled that the government does not have prerogative power to invoke Article 50 without a vote by parliament.

In the search for safe havens, German cities will be Europe’s most preferred real estate investment and development destinations next year.

As reported last month, London slipped to second in LaSalle Investment Management’s annual European Regional Growth Index (E-REGI) following the country’s Brexit vote in June. The uncertainty surrounding the UK’s future trade relationship with the EU is dampening economic prospects in the country, the firm said.

ULI and PwC’s joint report is based on the opinions of almost 800 real estate professionals in Europe, including investors, developers, lenders, agents and consultants.

“The fallout from the Brexit vote gives an extra boost to the already-strong German real estate market,” said ULI Europe chief executive Lisette van Doorn.

“With considerable political and economic uncertainty in Europe, many real estate investors are willing to sacrifice some yield in return for lower risk. In this risk-off environment, the stability of German cities becomes even more attractive.”

Berlin, Hamburg, Frankfurt and Munich occupy four of the top five spots for 2017 investment and development prospects in the annual forecast.

Germany is currently the most popular destination in Europe for real estate investors and developers, with recent data from Real Capital Analytics confirming that the country has overtaken the UK following the EU referendum in terms of investment volumes.

While remaining Europe’s primary magnet for global capital, attracting €31bn of capital inflows in the 12 months to September 2016 according to Real Capital Analytics, London has fallen from number 11 in 2016 to number 27 in the ranking for investment and development prospects.

Despite short-term uncertainty over London, most interviewees have faith in its medium to long-term future as a key global city, the report found.

International political instability is expected to pose significant challenges in the coming year, with 89% of respondents listing it as their top concern for 2017. Forthcoming elections in France, Germany, and the Netherlands, as well as concerns about migration and terrorism, add to this uncertain outlook.

With elections on the horizon across Europe, political instability in the region has never been so pronounced, as IPE Real Estate recently reported.

The report said 46% of respondents believe that the migration crisis will get worse in the coming year, with terrorism a key threat to investor confidence

International political instability is not expected to dissipate quickly: nearly two-thirds of survey respondents expect political uncertainty in Europe to worsen over the next three to five years.

As well as geopolitical risks and economic growth prospects in both the short and long-term, the report draws attention to a number of potentially more significant influences that are taxing the minds of Europe’s real estate leaders.

“Given the timing of this year’s report, which coincided with a period in which people are coming to terms with the result of the UKs referendum on the EU, it was inevitable that this would become a common reference point for the real estate industry’s uncertain view of the future,” said PwC’s real estate director Gareth Lewis.

“But after taking the pulse of the real estate industry’s leaders, it’s clear that below the surface, there are complex and significant influences at play beyond today’s geopolitical issues.”

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