Editor’s letter: Globalism under threat

Daniel Cunningham

March is MIPIM month and an annual reminder of just how international today’s real estate industry has become. As a microcosm of Europe’s property markets, the Cannes event brings together professionals from all corners of the continent, as well as those from elsewhere who view Europe as a crucial source of value.

Like many other business sectors, real estate has harnessed the acceleration of globalisation which has occurred so far this century. Europe in particular has benefitted from global flows of capital. As the region’s markets recovered from the crisis, US private equity money flooded in. Then, as markets stabilised, vast reserves of Asian institutional capital were tapped to buy into the continent’s most prime property.

The roster of lenders which finances the European sector is arguably less international than the investor base it serves, although diversification in recent years has seen European banks increase lending beyond their national borders, US lenders capture more market share in Europe than before and Asian bank balance sheets take part in large syndicated loans.

All this is why the current political assault on globalism should be of concern to those who work in real estate.

Within Europe, the ease of doing business across national borders can no longer be taken for granted long-term, while the protectionist rhetoric coming from across the Atlantic has the potential to alter the course of global economics. Lenders operate best in an environment in which cross-border trade is open. The turning of the tide against globalism threatens that.

However, despite the increasingly uncertain backdrop, property investment and lending activity remained relatively robust during 2016. The UK’s EU referendum vote last June threatened to derail the market, but, by the last quarter, it was back on course, with some banks reporting huge lending volumes by year-end.

While political and economic concerns occupy lenders’ thoughts, the underlying fundamentals of the property market ultimately guide investment decisions. And those fundamentals remain fairly sound. Many European property sectors look fully-priced, but there is no shortage of investors eager to park money into stabilised assets. The clear sentiment among lenders is that, barring another major political shock, 2017 should be a good year.

The state of Europe’s property markets is examined in further detail in this issue, while this month’s special report is on global capital flows. US investment eased last year and we analyse how the politics of Donald Trump will affect it in future. Meanwhile, Asian money into Europe is increasingly important. We examine how protectionist measures by the Chinese state could affect capital flows.

The subject of this month’s profile, DekaBank, is one European lender which is determined to stick to its “mission”, as real estate boss Anni Hönicke calls it, of providing sensible loans secured by the best properties. For Hönicke, one of the industry’s optimists, getting the property fundamentals correct is the most important factor, whatever global politics may throw at the sector. That is worth repeatedly thinking about in such turbulent political times.

Enjoy the issue.