Login to access your documents and resources.
The client portal are currently unavailable
Which type of investor are you?
Global Cities

Think European cities 2020 outlook

Stefan Wundrak
Head of Research, Real Estate, Europe
Think European cities Q4 2019 outlook
Eurozone output remains positive, but sluggish, with Consensus forecasts of 1.1% for 2019. National data showed that Q3 2019 GDP growth remained stable in Italy (0.1%), Spain (0.4%) and France (0.3%). However, the slump affecting the export-oriented manufacturing sector, most notably in Germany, and a pull-back in economic sentiment, implies a slowdown over the next few quarters, in line with weaker activity and subdued employment intentions.  

Domestic political headwinds, most evident in the United Kingdom, Spain and Italy, plus the negative global trade environment will continue to weigh on eurozone sentiment and orders. This is likely to lead to a slowdown in business investment, which surprised on the upside in 2019. 

On a more positive note, credit conditions remain supportive for investment, with loans to corporates still expanding at a robust pace. Activity in construction and real estate remains solid across many countries, supporting investment, although we expect their contribution to growth to moderate in 2020. 

Subdued growth and inflation have pushed the European Central Bank (ECB) towards a more accommodative path than we saw in the spring, abandoning its earlier stated aim to normalise interest rates – a stance mirrored by other global central banks. The ECB have cut the deposit rate by 10bps to -0.50%, while pledging to hold interest rates “at their present or lower levels” until the inflation outlook converges to its target of close to, but just below, 2%. It also reactivated the asset purchase programme, at €20 billion a month, making the new QE programme open-ended. The Bank announced more favourable conditions for its targeted longer-term refinancing operations (TLTRO) and introduced a tiered reserves system for bank deposits to ease the impact of negative rates. 

The weak growth outlook combined with the ECB’s strengthened forward guidance means that monetary conditions previously considered ‘temporary’ and ‘extraordinary’ will remain in place for an extended period. We do not expect interest rates to rise until 2022 at the earliest. 

 Against this backdrop, the negative benchmark government bond yields witnessed across core Europe, and just 0.4% for the United Kingdom, as of end Q3 2019, look set to linger in 2020 and beyond. With risk-free rates compressed at this super-low level for longer, real estate is set to benefit.

Think European cities Q4 2019 outlook_chart
Office sector overview 
  • The eurozone economy slowed markedly over 2018, with leasing transactions in Paris, Munich, Amsterdam, Luxembourg, Vienna and to a lesser extent Stockholm c.30% lower by Q3 2019; Amsterdam take-up is 50% weaker. 
  • A number of centres continue to perform well; among these are Hamburg, Brussels, Berlin, Dusseldorf, Milan, Dublin, Rotterdam, Warsaw, Lisbon, Barcelona, Madrid and London City.
  • Despite leasing transactions cooling from prior peaks, solid demand and disciplined development underpins a positive outlook for rental growth in most markets into 2020.

Retail sector overview 
  • Repricing has been far less marked in continental Europe than in the U.K., with prime shopping centre yields moving out 20bps in Germany and 25bps in Italy and Spain vs. 85bps in the U.K.
  • Retailers are no longer willing to pay market rents, whether they are doing well or not.
  • While lack of investor demand has softened retail pricing, occupier fundamentals will play a key role in 2020 with realisation that rents need to rebase, putting further pressure on capital values.
  • Opportunities will arise in the medium term where solid occupier fundamentals are coupled with high-yielding assets so that retail becomes an income or value-add opportunity.

Logistics sector overview 
  • Logistics is enjoying a goldilocks period, with rising rents, falling yields and manageable supply levels.
  • The key risk for logistics in 2020 is the global trade conflict removing cyclical support for the sector.
  • Due to the structurally driven demand for logistics space in the current cycle, the past correlation of office and logistics markets may no longer hold when the business cycle turns.

Housing sector overview 
  • Lower-for-longer interest rates reinforce an investor focus on sectors benefiting from strong structural tailwinds.
  • The housing sector appeals to capital which is attracted by past risk-adjusted performance and resilience.
  • Challenges include achieving scale and operator efficiencies, with design and consumer preferences ever evolving.
  • European markets are at different levels of sophistication and maturity, and hence pricing.
  • Pricing is keen but value-add returns are achievable through forward funding and build-to-core strategies.

Contact us
Our offices
London skyline
201 Bishopsgate, London, United Kingdom
This document is intended solely for the use of professional clients in Europe, Wholesale Clients in Australia, Professional investors in Hong Kong, and Institutional Investors in Singapore and United States, is not for general public distribution. Any assumptions made or opinions expressed are as of the dates specified or if none at the document date and may change as subsequent conditions vary. In particular, the document has been prepared by reference to current tax and legal considerations that may alter in the future. The document may contain "forward-looking" information or estimates that are not purely historical in nature. Such information may include, among other things, illustrative projections and forecasts. There is no guarantee that any projections or forecasts made will come to pass.

International investing involves risks, including risks related to foreign currency, limited liquidity particularly where the underlying asset comprises real estate, less government regulation in some jurisdictions, and the possibility of substantial volatility due to adverse political, economic or other developments. Past performance is no guarantee of future performance. The value of investments and the income from them may go down as well as up and are not guaranteed. Rates of exchange may cause the value of investments to go up or down. Any favourable tax treatment is subject to government legislation and as such may not be maintained. The valuation of property is generally a matter of valuer’s opinion rather than fact. The amount raised when a property is sold may be less than the valuation.

Nothing in this document is intended or should be construed as advice. The document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment. This material is provided for informational or educational purposes only and does not constitute a solicitation in any jurisdiction. Moreover, it neither constitutes an offer to enter into an investment agreement with the recipient of this document nor an invitation to respond to it by making an offer to enter into an investment agreement. This material may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections, forecasts, estimates of yields or returns, and proposed or expected portfolio composition. Moreover, certain historical performance information of other investment vehicles or composite accounts managed by Nuveen has been included in this material and such performance information is presented by way of example only. No representation is made that the performance presented will be achieved by any Nuveen funds, or that every assumption made in achieving, calculating or presenting either the forward-looking information or the historical performance information herein has been considered or stated in preparing this material. Any changes to assumptions that may have been made in preparing this material could have a material impact on the investment returns that are presented herein by way of example. This material is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The information and opinions contained in this material are derived from proprietary and non-proprietary sources deemed by Nuveen to be reliable, and not necessarily all-inclusive and are not guaranteed as to accuracy. There is no guarantee that any forecasts made will come to pass. Company name is only for explanatory purposes and does not constitute as investment advice and is subject to change. Any investments named within this material may not necessarily be held in any funds/accounts managed by Nuveen. Reliance upon information in this material is at the sole discretion of the reader. They do not necessarily reflect the views of any company in the Nuveen Group or any part thereof and no assurances are made as to their accuracy. Past performance is not a guide to future performance. Investment involves risk, including loss of principal. The value of investments and the income from them can fall as well as rise and is not guaranteed. Changes in the rates of exchange between currencies may cause the value of investments to fluctuate.

Nuveen Real Estate is a real estate investment management holding company owned by Teachers Insurance and Annuity Association of America (TIAA). Nuveen Real Estate securities products distributed in North America are advised by UK regulated subsidiaries or Nuveen Alternatives Advisors LLC, a registered investment advisor and wholly owned subsidiary of TIAA, and distributed by Nuveen Securities, LLC, member FINRA.