European elections loom over the market

France is due to go to the polls on Sunday and a June general election has been called in the UK. Politics continues to lead the agenda for European real estate.

European politics remains full of surprises. Despite having ruled out the possibility on several occasions, UK Prime Minister Theresa May this week made a shock call for an 8 June snap general election, which parliament subsequently approved.

That date, along with France’s two-stage presidential election on 23 April and 7 May and Germany’s federal election on 24 September, can now be added to what Colliers’ chief economist Walter Boettcher this week called the “European calendar of uncertainty”. The first of those dates – the initial round of France’s presidential election – comes this Sunday.

For Europe’s real estate finance professionals, who tend to value stable backdrops to the markets in which they operate, there is a lot to ponder in the French and British elections.

The announcement of the UK’s general election caused a mixed reaction across markets. The pound rallied to a six-month high, although the FTSE 100 had its worst day of trading since the vote for Brexit, recording a 2.46 percent drop, effectively erasing its 2017 gains. Reaction from within the real estate sector was measured, with some expecting an immediate delay in decision-making by some investors. However, hopes were expressed that the outcome of the election will be longer-term political certainty, with a clear government mandate for Brexit negotiations helping to calm property investors and occupiers alike.

But the outcome of the UK election on the course of Brexit is difficult to call. In striking now, May is aiming to capitalise on the poor polling of the opposition Labour Party and win a significant parliamentary majority that would allow her to press ahead with her vision of Brexit. While that could mean handing May a mandate for what her critics call a ‘hard’ Brexit, some have argued that a large majority would in fact give her the ability to withstand the hard-line Eurosceptics in her own party and therefore opt for a ‘softer’ Brexit than many had expected.

In the last year, politics has proved hard to predict, and with 48 percent of those who voted in last June’s referendum voting to remain within the EU, there is substantial opposition to the Conservative-led Brexit among the electorate, which means a Conservative landslide cannot be assumed.

The real estate finance market has been digesting the impact of Brexit for the best part of a year now, so the June election could provide greater certainty on what the course of Brexit will look like, even though it is difficult to predict at this stage.

Meanwhile, the French presidential elections are the more immediate threat to European political stability, with the right-wing populist Marine Le Pen’s nationalist and Eurosceptic Front National among the parties in contention. Recent polls have put Le Pen and independent centrist candidate Emmanuel Macron as front-runners for the first round, although few are writing off conservative François Fillon or leftist Jean-Luc Mélenchon. If Le Pen were to triumph in Sunday’s poll, there is no guarantee of victory in May and polls suggest that Macron would easily win the second round. Again, predicting politics is an extremely tricky business.

Property investors will be watching the French elections with trepidation. Intertrust, a provider of trust, fund and corporate services, recently conducted a survey of real estate investors in which a total of 56 percent of its sample said they believed property fund managers would review or delay real estate asset exit strategies if Le Pen’s party were to win.

In March, while real estate people gathered at MIPIM, the failure of far-right candidate Geert Wilders to bring a populist ‘revolution’ to the Netherlands in the country’s general election led many in the industry to breathe a sigh of relief that another challenge to Europe’s safe-haven status had been averted. Similar happened after Austria’s presidential election in December 2016 when the populist Freedom Party of Austria candidate was defeated.

The French election puts that threat back onto the table, while the UK’s election will be a crucial stage in the divorce between the UK and the EU. For a market that likes stable backdrops, certainty for real estate is in short supply.