The Greek crisis is not hurting demand for real estate, says CBRE Global Chief Economist

Richard Barkham talks to Paola Dezza from Il Sole 24 Ore

“We are not underestimating the hardship for the Greek people and the longer term consequences on European integration, but the US economy is growing well, the Chinese economy is picking up, there is a recovery in the eurozone. So it is unlikely that the Greek crisis will affect real estate markets too much.”

This is the view of Richard Barkham, Global chief economist of CBRE, a leading global real estate consultancy company.

“Moreover the nature of the Greek crises is so well-known and there are so many measures in place to contain the crisis, that we don't see that it will have a substantive impact on the real estate market around the world or in even Europe,” he said.

By contrast, because monetary policy will be deployed in full to boost growth in the eurozone and prevent contagion, the Greek crisis might even have a positive impact on real estate, by keeping bond rates lower for longer. And could the Italian market take advantage of this situation?

“I think there is a little bit of optimism on the Italian economy and I think investors are interested in acquiring assets in Italy. Italian property, as elsewhere, provides a good income yield relative to bond rates, so I would be optimistic on Italian real estate market,” said Barkham. “Fundamentals will recover only slowly, but this is true of markets around the world and investors are still very interested in Italian real estate.”

Last year in Italy we saw several changes in source of capital. Many investors came back to Italy from United States and United Kingdom, but also Asian and Middle East investors and sovereign funds are interested in Italian real estate market. The US giant Blackstone bought assets in Italy for €2.5 billion, Chinese company Fosun has just bought Palazzo Broggi in Milan for €345 million euro. Cerberus, Apollo, Tristan, Tpg are looking for asset or portfolio asset to buy.

“I explained this situation in terms excess savings,” Barkham continued. “Another way of looking at the situation is that in the newly wealth economies of South East Asia, most savings are going to pension funds and insurance companies. These pension funds and insurance companies within Asia face extremely expensive real estate prices so they are going to move out to Europe to get ’better prices’ and I think it's a stage by stage process.”

“Asian investors will tend to go for the better known and more liquid markets first, such as London, once they become comfortable with those markets then they will look at Italy.“

“Italy has a weak recovery but it's a big stable country, a G7 economy, with many very wealthy cities. Certainly when I talk to Asian investors, they are interested Italy. Spain has captured most attention because it has had a dynamic recovery from quite a big crisis, but there is also interest in Italy. Furthermore, the more transparent the Italian real estate market becomes, the more likely that capital is going to come into Italian real estate market.”

And the big Italian brands are very well known in Asia, so that helps.

“Asian investment in western real estate markets is a big story around the world,” he said. “The balance sheet of the eastern economies is very robust, so what we are beginning to see it's a whole scale transfer assets from the west to the east and I think it's going to continue for some time.”

The problem in Italy is the relatively small investible real estate market.

“There are benefits to the Italian economy of making that market institutionally legislatively accessible to international capital, international capital then demands more professional management standards so as international capital comes in and professionalization of real estate management becomes more established, there is a gain to the efficiency of the economy. I think that everybody knows the things that your own government has promised to do; if it could actually do some of those things, it would be a real gain in efficiency.”

As core real estate becomes more expensive and yields go down, investors are looking at alternative asset classes such as residential sector, student housing and senior housing medical offices. Asset classes that are very small in Italy. The problem is the legislation.

“There are many investors looking at Europe in terms of student housing because they see student numbers, it's just a question of getting the specialized operator. Of course not all European Countries have favorable legislation, including Italy,” Barkham concludes.

Interview by Paola Dezza - Il Sole 24 Ore