The ECB has today taken markets somewhat by surprise with the scale of its quantitative easing (QE) programme and this should help to consolidate recent bond yield and currency falls and hopefully pave the way for higher inflation expectations and also better GDP growth.
Maintaining market confidence will be crucial to making this happen in the short term of course but to deliver real and sustainable changes going forward, the QE programme needs to encourage governments to get on with deeper structural reforms. In our opinion it will be the committed reformers like Spain who will be most rewarded with increased activity and inward investment.
David Hutchings, Head of EMEA Investment Strategy at Cushman & Wakefield said : “If the QE programme is successful, the impact on property markets in general could be substantial as even more demand will now be diverted into the market. As a result, yields are set to fall more than expected and volumes will be pushed further back towards record levels.
Cushman & Wakefield predicts that without QE, the market would be expecting a 5-10% increase in European investment volumes this year alongside a 20-30bp prime yield fall. With a successful QE package delivering lower for longer borrowing costs, more growth and some reform, that forecast is increased to a 40-70bp yield fall and a 20% plus jump in property trading.
Cushman & Wakefield points outs that this of course assumes investors can find the stock to buy, which relies on bank sales and deleveraging as well as profit taking and stock recycling. Also however according to Hutchings, “We can expect increased interest in a range of global markets as Europeans export capital in search of opportunities, and also a move back into development, helped by recent falls in commodity prices softening build costs. In addition, we are now anticipating more corporate activity - including asset sales by corporates, joint ventures and takeovers.”