Political wrangling in the UK and Germany has led to a decline in the value of Europe’s listed commercial property market.
At the end of the second quarter, the total value of listed real estate in developed Europe reached $486bn (£392bn), down 1.2% from $492bn in Q1, according to the latest figures from EPRA.
The total value of the UK listed commercial property market dropped to $87.5bn, down 5% from $91.7bn on the quarter.
The UK is still the second biggest developed European market behind Germany, where values fell from $112.9bn to $104.9bn.
EPRA director of research and indexes, Ali Zaida, said specific political issues in each country – from Brexit in the UK to tighter rent controls in Germany – had contributed to the declines.
“Europe’s listed sector has fallen marginally in the last quarter, but the overall picture for Europe is actually one of marginal growth in the last quarter. The UK and Germany are the two most influential markets in value terms, and both are experiencing specific political conditions that have negatively impacted investor sentiment that hurt the value of the wider European market.”
In the UK, Zaida said the market was under strain from political uncertainty around Brexit and the Conservative Party leadership race.
“Earlier in the year, the UK’s commercial property market looked as if it could rally in the short term. However, renewed uncertainty, particularly the race for the premiership, has caused additional pressure that will likely cause the market’s significant discount to persist.”
He added that the UK market’s discount to net asset value had failed to make a recovery as previously expected as the country continues to grapple with issues around Brexit. “The UK market is trading at a 23% discount to NAV while the long run discount is around 17%. The UK index declined 13% in one year (2018). This was accepted to be Brexit-related and when a deal was to be expected we anticipated the recovery to take place to revert back to the long-term average annual return.”
Meanwhile, Zaida said the German residential market “took a major hit in value terms” owing to discussions around rent control laws which wiped almost 8% off the value of the country’s listed property sector in Q2.
The German capital is set to freeze rents for five years after Berlin’s senate approved a draft bill for a rent freeze, or Mietendeckel, which means landlords will be blocked from increasing rent on residential properties for five years.
EPRA’s report also shows the total value of the commercial real estate in developed Europe is estimated at around $8.2 trillion, of which listed real estate makes up $486bn.
In total, there are some 227 REITs within the listed real estate sector in the EU, with a combined market cap of more than $213bn.
Beyond EMEA, China has the biggest listed real estate sector within EPRA’s emerging markets table, totalling $645.71bn.
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