Hopes that the Eurozone debt crisis was on its way to being resolved have clearly been hit by recent election results and this continues to test the nerves of the property market, with the opening quarter seeing a fall in leasing and investment activity that was far from limited to just the most indebted markets of Greece, Ireland, Italy, Portugal and Spain (GIIPS).
Annual Change in Market Activity to Q1 2012:
Source: Cushman & Wakefield, RCA, Property Data and KTI
Hopefully this is only a temporary lull – and avoiding recession in Q1 was certainly a boost for the Eurozone – but Europe’s position is inevitably likened to being on a tightrope: with a fine balancing act required between austerity and growth, between short and long term needs and ultimately between purely national interests and the wider common good.
While there’s a lot of guesswork going on, the costs of a country leaving the Euro are not yet known but could well be huge for Europe and catastrophic for the country concerned. However while this seems to have been grasped by the authorities, the next steps may be decided on the streets not in Brussels and the growth in support for extreme parties in many areas shows what a risk this is.
At the same time, it can obviously be dangerous for voters to have the illusion that there is much choice – as Greek voters may find out if they believe some of their politicians. After the hair cut “agreed” on Greek debt in March, it is likely to be some time – eg many years – before the private sector will again fund Greek public spending, whether in Euro’s or new drachma, and it will therefore remain reliant on the EU and the IMF.
Ideally the potential severity of this situation will lead to a willingness to compromise and in the first instance, we could see Greek voters and politicians recognising a need for austerity and in turn, in exchange for genuine reform, the troika and the markets could be ready to grant some relaxation to the depth of the cuts now planned, and not just in Greece. Alongside this, the much demanded “plan for growth” could start to emerge – focusing on construction in many markets.
However whatever Greek voters decide next month, it remains clear that a resolution of the crisis will be neither quick nor easy. For property markets, this has mixed implications – on the one hand risk aversion, limited growth and finance driven business failures will continue to hold back confidence. On the other hand, demand for core, stable assets and productive space to occupy will increase. What is more, sitting back and waiting for conditions to stabilise will be less and less of an option; occupiers and investors will need to react to the “new normal” of ongoing volatility and structural changes driven by technology and sustainability and, if we’re lucky, also by serious economic reforms.
David Hutchings, European Research Group, London