Real Estate Research

European real estate: into the upturn

The eurozone economy has finally turned the corner with an outlook of steady, if unspectacular growth. The key question for real estate investors is whether now is a good time to enter the market?


Mark Callender

Mark Callender

Head of Real Estate Research

Oliver Kummerfeldt

Oliver Kummerfeldt

European Real Estate Analyst

Tony Smedley

Tony Smedley

Head of Continental European Investment

The eurozone economy has finally turned the corner following a protracted recession which began with the global financial crisis, but was then exacerbated by the sovereign debt crisis in southern Europe.

Last year saw eurozone GDP rise by 0.9% and the consensus is that growth will accelerate to 1.5% this year and 1.8% in 2016.

Focusing on the major economies, Germany and Spain are forecast to lead with growth of 1.75–2.5% per annum, France is expected to track the eurozone average and Italy is likely to lag behind with growth of 0.9% per annum.

Of course, the eurozone still faces challenges. Greece could leave the euro in the next couple of months and any escalation of the conflict in eastern Ukraine is likely to hit business and consumer confidence.

There is also a small possibility that deflation in the eurozone could become entrenched, if businesses and consumers start to defer purchases in the belief that future prices will be lower.

However, while there are clear downside risks, the eurozone economy is significantly stronger now than it was 2–3 years ago.

The majority of governments have completed their austerity programmes and the average budget deficit in the eurozone is forecast to be 2.5% this year, compared with a peak of 6% in 2011 (source HSBC).

The ECB has also established the European Stability Mechanism to protect governments against future liquidity crises in bond markets.

Moreover, the major banks have been re-capitalised and are now starting to lend again, which bodes well for short-term growth (see Figure 1 above).

Finally, Spain and to a lesser extent France and Italy have enacted a number of supply side reforms which should boost their competitiveness over the medium-term.