Turnaround in crisis hits Europe property markets
The new RICS report on the outlook of Europe property markets highlights the turnaround in Europe’s economy, with Spain, Portugal and Ireland leading the Euro area recovery. The report explores the recent improvement in conditions and the new trends in these markets looking at 2016 and beyond.
Following an extended period of adjustment, the three economies of Spain, Portugal and Ireland, previously dubbed the “sick men of Europe”, are the outperformers of the euro area recovery. Their economic progress has become a bright spot in the comparably weak overall euro area, particularly during a time of widespread doubt surrounding the health of the global economy.
According to RICS, the reversal in fortunes throughout Portugal, Ireland and Spain has in part been driven by material improvements in competitiveness.
The relatively strength of the recovery in these three European markets has started to attract the attention of international investors, fuelling a revival in their real estate markets.
In the commercial sector, investment volumes grew by around five times in each market over the last two years and the supply of property for sale has since declined in Ireland and Portugal, according to RICS data, and in Spain it has meanwhile stopped rising and stabilised. As a result, commercial real estate is expected to deliver strong returns with further growth in capital values (especially in the office sector) and rents in all markets over the next twelve months.
In the residential sector, the Portuguese housing market stages a turnaround with activity consistency improving, after nearly four years of great difficulties. According to the RICS/Ci Portuguese housing survey, sales and prices will continue to rise at a steady pace over the medium term. This turnaround is similar to that found in Spain, where the official price index shows that prices have started to recover modestly over the last twelve months. However, RICS reports that further support will be needed in both markets from the labour market, as well as the upturn of the global economy to consolidate this recovery.
On the contrary, the housing market in Ireland has raced ahead, stocking fears among some that it is becoming overheated again, as house prices have increased by 33 percent since 2013. Nevertheless, the annual rate of house price inflation has eased during the last two quarters and is currently running at 9 percent and is expected to decline.
“The three economies of Spain, Portugal and Ireland have clearly come a long way since being forced to seek financial assistance following the great recession. The significant turnaround has, in part, been credited to the economic reforms pushed through in the face of a near collapse in the banking system, spiralling public debt and badly hit labour markets. As such, these nations have become ambassadors for the types of structural reforms that many feel the rest of the currency bloc requires for a more robust recovery to take hold.
This revival has also become increasingly evident across the real estate sector after prolonged and painful downturns. Investors have been drawn to these markets, with the steep decline in property prices leaving assets attractively valued, while strengthening economic fundamentals and the relative outperformance compared to the wider euro area have also been crucial factors. These improvements are, however, coming off a low base and issues still need to be addressed by policymakers to ensure this progress is sustained over the longer term,” concluded Tarrant Parsons, RICS Economist.