The Institutional Real Estate Letter – EUROPE
further in most markets,” says Rubinsohn. “Ensuring a ready flow of mortgage finance needs to be an important priority for European governments, but the key to providing support for property markets across the region is effective measures to underpin the economy.” NO TELLING Home ownership or owner occupation is a natural fit and aspiration for individuals and families but house ownership is not such a natural fit
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or aspiration for institutional investors. Much depends on the individual market. But as Ball says: “There’s nothing like a crisis for developing an interest.” According to Mark Long, director and head of investment strategy and research at Invista Real Estate Investment Management, institutional investors across Europe differ in their approach to residential property investment — the split in allocation between residential and commercial real estate, for example, ranges from
The Genie and the Bottle
ne further ability of this recession — and one that has not previously been fully tested or understood — is that of revealing and laying bare the fault lines in the projet européen. Europe, whether the European Union (EU) and its 27 member states, whether the European Economic Area (EEA) and its wider membership, has been attempting over recent years to speak with one voice, to be taken more seriously as a single entity on the world stage. The effort was starting to pay off. Until … The entreaty from Nicolas Sarkozy, the French president, to those French car manufacturers that are seeking his government’s aid in support of their operations that they should build French cars for French people by French people in France was an early indication that protectionism, with each country or economic bloc acting for itself and looking after its own, could play a major role in this recession. Gordon Brown, the British prime minister, had made a much earlier and doubtless since regretted call for “British jobs for British workers” — admittedly in a different context — that may yet come back to haunt him. Even Barack Obama, the new US president, attracted criticism in his early days of office for the “Buy American” clause in his $787 billion (€592 billion) economic recovery package. The target of Sarkozy’s entreaty to French car manufacturers was the relatively new and highly efficient Citroën/Peugeot/Toyota small car plant at Kolin in the Czech Republic, some 60 kilometres east of Prague. The plant was built primarily to meet burgeoning demand for small cars, especially in central and eastern Europe, and the co-owners were also mindful that the Czech Republic offered a more relaxed labour market and less demanding social security and industrial relations conditions. This is “new” Europe, after all. Car manufacturing is often taken as a measure of a country’s industrial virility. For many people, at least those who have not lost their jobs, the most obvious manifestation of the recession so far is the impact on vehicle manufacturing. New car sales have plummeted across Europe, storage facilities are full of unsold vehicles (if you do buy a new car anytime in the next two years, ask when it was built and where it’s been stored since), and car factories have either moved on to short time working or have closed for a period. Vehicle manufacturers are
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43 percent in Switzerland and the Netherlands to 7 percent in Spain and just 2 percent in the United Kingdom. For “bombed out” institutional investors, current markets are an opportunity to stop and assess: “stop” isn’t hard, very little is happening anyway; “assess” is slightly more tricky, as it requires some indication of where and how far markets are going. If institutional investors and their investment managers know, they’re not telling. Residential property will always be of interest but it
May 2009
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having to make new strategic decisions about future production levels. With many of the newer and most efficient car plants located in central and eastern Europe, it is the older and less efficient plants in western Europe that are bearing the brunt of manufacturer efforts to downscale their operations and output. Western European governments want to keep what car and light vehicle manufacturing base they have but also want to be sure that their financial and other support efforts, such as scrappage schemes, are deployed effectively in saving domestic plants and operations and not used elsewhere. The Czech Republic is currently acting as president of the EU and Mirek Topolánek, the Czech prime minister, was not best pleased at the implications of Sarkozy’s implicit “come home” protectionism. Václav Klaus, the Czech president, addressed the European Parliament in the aftermath of Sarkozy’s comments, was heckled when Members of the European Parliament didn’t like what he was saying, and has spoken forthrightly on this and other EU matters. For historians, this could all get interesting. The genie of “beggar thy neighbour” protectionism has been released from the bottle, and it may prove hard to put it back. The G20 economic summit that is due to take place in London in early April, and that is supposed to come up with a common approach to solving the global economic crisis, may prove to be an uncommonly fractious affair. It seems unlikely that Europe will manage to speak with one voice at the meeting; the history isn’t good and the portents are not favourable. The preparatory G20 meeting of finance ministers and central bankers that was held in mid-March, and that revealed different views on how best to proceed, is proof of that. The recession will exert its pressures and find Europe out; it will expose the divisions between east and west, north and south, rich and poor, developed and developing, euro zone and non-euro zone, slow and fast, strong and weak, secure and fragile, turgid and vibrant, “old” and “new”, free market and social market. The exposed divisions may prove harmful to bilateral relationships, to the longevity of the euro zone, even to the long-term existence of the EU itself. It is no time to find out that the European project is fatally flawed — just as France rejoins the NATO command structure and as prospects for a European Army are enhanced. — Richard Fleming
THE LETTER – EUROPE
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