Is Europe the Next Real Estate Bubble?

Jul 25, 2017

A new influx of money by French investors into real estate funds could force up the prices on European commercial properties into dangerous highs, according to a new analysis from Fidelity International Ltd.

Bloomberg is reporting that inflows into French collective-investment vehicles that purchase European commercial properties and other assets swelled to $6.5 billion in 2016, a 33 percent spike from 2015. The popularity of these vehicles is based on their higher returns and favorable tax treatments, especially in comparison with traditional stocks and bonds. As a result of this new interest in real estate, the prices for Class A commercial properties in major European cities including Berlin, Paris, Madrid and Zurich now exceed their 2007 peaks.

However, Fidelity is warning that this could pose a potential problem, especially among investment neophytes. Adrian Benedict, the real estate investment director at Fidelity International, claimed that many French retail investors are not “familiar with how this asset class works and believe it can be exited flexibly when required. Their demands for liquidity could easily collide with a reality of forced sales and collapsing returns, or even investor lock-ins when the market turns.”

Benedict added that while the market has not yet reached a bubble level, it is too close for comfort. “We are increasingly cautious; it has all the hallmarks of a bubble which buyers enter at their own risk,” he said.

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Phil Hall

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Jul 25, 2017

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