Coronavirus: The Effect on Europe's Real Estate Transactions
Week demand, low sales pressure, investors are observing for the right moment to buy in. Since the Coronavirus outbreak in late 2019, the demand for EU real estate transactions has waned significantly, supply has not increased, and the market has temporarily frozen. However, owners are not short-selling their assets as of yet. In Denmark alone, for example, there are 25% fewer properties for sale, according to The Financieele Dagblad. In some parts of the UK, property showings are down 75%. Sales pressure is low as well, with signs that both buyers and sellers are hesitant to make any moves. Investors alike are opting to watch and wait for the right time to dive back into the market. Coronavirus is making its mark. A spokesman for the Dutch real estate agents association remarked about one transaction; the impact of Coronavirus was listed as a condition in the sales deal. According to a recent Bloomberg article on the EU real estate market, analyst Matthew Saperia said, “The evolving Covid-19 outbreak could have profound effects on real estate. The implications could be far-reaching, but quantifying these is highly speculative at present.” In the UK, investors of property funds will be banned from taking out money, the reason being that the crisis brought on by Coronavirus made it impossible to put a value on the buildings they own. According to investment managers, these measures were taken to protect their customers, since no valuation can be done. Therefore payments should not be made. Before the outbreak of Coronavirus, the EU environment was more capital market-focused than it was for deals, reflecting a higher tolerance for risk and reward. As asset prices rose, we saw yield compression across the board. “As far as equity is concerned, there is still an over-allocation in global markets to real estate. There is still a large amount of that allocation coming to Europe,” says the CEO of a pan-European consultancy. What has not changed, however, is the presence of capital that is still waiting to be deployed into the market. Unfortunately, both individual buyers and institutions have halted any purchasing decisions as the panic of Coronavirus spreads. The current situation is more of a game of ‘who can last longer.’ versus the systemic failure seen in the Great Recession of 2008. Short-selling bans are sweeping across the EU: Italy has a 3-month prohibition in place, and both France and Belgium have their bans set for one month. Amidst this, deal brokers have come out of the woodwork to approach owners of real estate for short sales. There is no way to know when we will hit the market bottom indeed. It is safe to assume that buyers will not feel comfortable enough to start closing deals until the market warms up again. Until then, they will be sitting on the fence as the world rides out the effects of this unprecedented pandemic. However, if owners continue to feel pressure to sell, and the short-term spread remains high, there may be opportunities to buy into the market. Since we are at the start of this pandemic, it is too early to tell.