Forget Spain for now, events in Greece over the next few days will be setting the tone for Europe for better or for worse.
Greek voters go back to the polls on Sunday and clearly face a tough choice, caught between a rock and a hard place. Surveys have suggested growing support for pro-bailout parties but with no opinion polls allowed in the last 2 weeks of electioneering, we’re going in to the countdown blind.
Parts of the Greek property market have all but seized-up as the election has approached but if we’re lucky, the result could pull us back from the brink if it is seen as an endorsement of efforts to stay in the euro. Equally however it could edge us closer to what many see as an inevitable break-up.
Either way, we shouldn’t perhaps get our hopes up that the end of the problem is nigh. Uncertainty is not likely to fade any time soon and greater electoral tests may lie ahead in Germany and Italy.
A flight of capital may be seen if anti-bailout parties prevail on Sunday but whoever wins some let-up in austerity seems likely as the growing stresses in Greek business and society demand a response. Nonetheless, a Greek euro-exit may not be a foregone conclusion, even though the potential for one or more members to leave at some point is greater than it seemed a few months back.
Contingency planning is clearly called for but when businesses consider this, they are often finding more questions than answers. Perhaps the key property issue is what will happen to leases if the currency changes. No one seems to know but many have an opinion!
The safest assumption may be that those with most market power will prevail – and for now that means tenants given that Greece is a market with falling rents, rising availability, limited demand and tenant-friendly leases which can be broken at 3 months notice with just one month’s rent penalty, once passed the first anniversary.
At the same time, if the currency depreciates, so too will asset values for those looking from abroad. Hence even though few leases have a clause to deal with currency change, it is not surprising that some corporates and investors are asking for one. More occupiers are also looking to renegotiate existing leases and in our opinion this will continue as the market and tenant needs change.
It has to be remembered however that Greek lease law offers a high level of security of tenure and those landlords with the luxury to choose will be wary of locking in too low a rent for the long term. There also tends to be less flexibility to renegotiate in the shopping centre sector than elsewhere. Hence the best advice for landlords and tenants is to consider each property and lease separately, be ready to act and renegotiate but not commit too far in to the future.
What is more, while all market players need to hunker down to wait out the crisis period, changing conditions will create an opportunity for some. However it may be a little while before some, investors in particular, have the confidence to act and in the near term, uncertainty will only put more investor emphasis on the safest, top prime global markets.
David Hutchings, European Research Group, London