Barack Obama’s election victory will impact positively on business sentiment in Europe, feeding into occupier markets and, in turn, lifting confidence among property owners and investors, comments Walter Boettcher, director of UK/EMEA Research at Colliers International.
A recent global survey undertaken by Colliers International suggested that few direct property investors in the EMEA region were worried about the impact of the US election on their investment decisions. The same was even true of property investment into the US. Obama? Romney? The general consensus of the survey respondents was that ‘it’s all the same’.
Rather than worrying about what is happening in the US, property investors were more concerned about the state of the eurozone - seemingly negating the argument that the US election outcome will impact directly on EMEA businesses.
Against this apparent disinterest in the Obama/Romney contest, many respondents cited the ability (or not) to raise equity, the lack of available product and finance conditions as being more pressing concerns. However, they did not feel that these issues were necessarily linked to American political change. Equity raising is, of course, linked to global economic certainty as investors are not fond of volatility. The availability of product is linked to the idea that unless forced, landlords are unlikely to sell income-producing assets when pricing is uncertain and the productive redeployment of capital even less so. And finance conditions are linked pretty much directly to bank capital ratios and the like, which are under increasing pressure, not least of all due to policies that were hotly, if inconclusively, debated prior to the election.
In the Colliers survey, property investors also named ‘constant uncertainty’ as a key worry, as a result of which business confidence is still at recessionary levels. EMEA investment volumes fell over the first half of 2012, but a modest recovery in the third quarter of this year has not been enough to return the figures to 2011 levels. Even ‘safe haven’ markets such as Paris and Munich have felt the effects.
Europeans support Obama
Yet, despite this supposed indifference to the US presidential race, Europeans overwhelmingly (75%) support Obama. This actually has less to do with the personalities than with the pragmatics of policies. While much can be made about the pros and cons of individual policies, European support more likely reflects a desire for continuity. European business and finance people may not like the complex set of new finance regulations that are being spearheaded by American regulatory zealots.
To put this in perspective, Obama’s legislation is estimated to require 67 new studies, some 243 rules, several new agencies, and will take five years to implement fully, all of which are likely to provide a template for similar UK and European initiatives. Many, though, are more fearful of the uncertainty that a Romney administration would create by revisiting these agreements. In that sense, European support may simply be a ‘better the devil you know’ outlook, rather than any derived from a deep awareness and approval of specific policy options. It also has to do with a desire for continuity on eurozone political issues where America has proven supportive.
So is it business as usual with Obama in for four more years? Maybe not. The political mathematics may not have changed substantially, with leadership and congressional balances much the same, but Obama has received a new political mandate to finish the job he started. In his first term, Obama used his political capital on healthcare reform, leaving little for other important battles. The new election will provide renewed strength to deal with the Fiscal Cliff and push through the financial reforms he has already begun, not to mention maintaining a stable approach to other international challenges (read Iran). He will not waste time.
The impact on business certainty will be positive and substantial throughout the Euro-American business world. Corporates will find the certainty they have been looking for and investment in business expansion may well find traction over the course of the first quarter of 2013. Occupier markets should show signs of life in prime markets and beyond. This is likely to give confidence to property owners who have been contemplating sales. In turn, investors will begin to look beyond prime and begin to work their way through secondary markets and free up the logjam of bank portfolio and other distressed sales. Risk assets will slowly come back into vogue, although on-going financial reform is likely to moderate the pace. Implementation of new policies is likely to be driven by economic rationality, rather than by pre-election ideology.
All in all, Obama’s win means European property investors can breathe an (albeit small), sigh of relief, because many were worried that a Romney administration would simply have rewound the clock back to 2008 - a time that most businesses would like to forget.