An unpredictable economic climate as a result of the U.K.'s decision to leave the European Union and political turbulence elsewhere in Europe poses the greatest challenge to the continent's real estate market in the coming year, a survey has found.
The Loan Market Association carried out the research, which showed that 36% of its members thought "macroeconomic uncertainty e.g. Brexit" would have the biggest impact on European real estate in the coming 12 months.
A "shortage of suitable assets" also was seen as a major challenge in 2017, with 27.7% of respondents choosing it over "too much competition creating an overheated market" (24%), "international political crises and sanctions" (8.3%), and "costs of regulatory compliance" (4%).
Concern among markets and industry over the U.K.'s imminent secession from the European Union — also known as "Brexit" — has remained high since the June referendum decision, due to a lack of clarity on the exact terms of the separation. A two-year negotiation period is set to begin by the end of March once U.K. Prime Minister Theresa May delivers on her promise to trigger what is known as Article 50 — the clause in the Lisbon Treaty detailing how a member state may voluntarily leave the European Union.
Uncertainty also surrounds upcoming elections in the key European markets of Germany, France and the Netherlands, with far-right populist parties expected to make significant gains in each. These polls follow on from the Italian electorate's decision in a referendum Dec. 4 to vote against a change to the Italian constitution, which led to the resignation of Matteo Renzi as prime minister. The next Italian prime minister will be the country's fifth in less than six years.
The LMA survey also found that "prime property in capital cities held with a long-term view" presented the best opportunity for growth among commercial real estate assets, according to 31.6% of respondents.
"Given the number of macroeconomic uncertainties on the horizon, it is no surprise that prime property, often in perceived 'safe haven' cities, is seen as that with the greatest potential for growth," the LMA said in its presentation of the results.
"Alternative sectors such as student housing, healthcare and retirement homes with strong rental prospects" were also seen as promising, attracting 28.3% of the respondents' votes. The remainder was shared by "property in Southern European/Central and Eastern European countries with improved economic prospects" (11.8%), "assets in regional cities outside the prime centres" (11%), "development finance, particularly for sustainable assets and pre-let developments" (11%), and "secondary assets" (6.3%).
The LMA survey was carried out in November, assessing members' outlook for the syndicated loan market over the next 12 months. The association's membership consists of 630 organizations covering in excess of 60 nationalities, comprising commercial and investment banks, institutional investors, law firms, service providers and rating agencies, according to its website.