0625-0630 Newsletter

Macro & Business Matters in EU

CPI test for G3 policy hawks - and lone dove

ECB head Christine Lagarde cemented expectations for a July hike, and Fed chair Jay Powell perhaps upped his hawkish credentials by keeping the possibility of consecutive rate increases on the table.

Bank of Japan Governor Kazuo Ueda, seated appropriately at the far end of the panel, stuck with his outlying view that inflation in his part of the world needs a bit more boosting, rather than taming.

Sweden's Riksbank sets policy today.?The consensus among analysts is for a quarter-point hike, but markets haven't ruled out a half-point move, particularly considering the Norges Bank's hawkish surprise earlier this month.

Age of crisis leaves world's big currencies out of sync

The global currency market is experiencing increasing divergence in currency movements, resulting in heightened volatility and unpredictability. In the past, currency trends were often interconnected, but differences in economic and monetary policy outlooks have led to greater dispersion in currency performance.

The Japanese yen and Chinese yuan have been depreciating against the US dollar, while the euro has been performing well and the British pound has experienced significant gains. The Bank of Japan's commitment to ultra-loose monetary policy has contributed to the yen's depreciation, while the yuan has been pressured by a weak economy and a widening interest rate gap with the United States. On the other hand, the euro has been strengthened by a hawkish European Central Bank, and the British pound has risen due to various factors.

Currency markets have become more sensitive to differences in monetary policies, with investors focusing on interest rate differentials and monetary cycles among central banks. However, due to global uncertainties, particularly the impact of the pandemic, the war, and the energy crisis, currency markets have become more unstable and challenging to predict.

Real estate poses only moderate system risk to Europe banks, S&P says

According to a report by S&P Global Ratings, European banks have a relatively low systemic risk in the real estate sector, with Sweden and Germany being exceptions. Certain segments of the real estate market face poor prospects due to expected tightening financing conditions in Europe as central banks raise interest rates to address inflation concerns.

However, European banks have relatively low exposure to real estate in their loan portfolios. Additionally, household finances are strong, labor markets are stable, and there are strict regulatory standards for mortgage lending. Therefore, residential mortgage portfolios are unlikely to cause significant credit losses for banks.

In real estate, offices, particularly in non-prime locations, and logistics are more vulnerable, while in the residential sector, S&P anticipates more pressure in countries with a high share of variable-rate mortgages and where the interest rate rise is largest, such as Sweden.?

Key risks in the future include fragile economic growth, a potential escalation and broadening of the Ukraine-Russia conflict, and increased interest rates combined with limited financing access. S&P predicts that economic activity in the eurozone may contract towards the end of the year as the effects of the post-pandemic recovery wane and higher interest rates dampen demand.

Turkey's lira hits new low after bank rules' rollback

The Turkish lira reached a record low against the dollar, sliding as much as 3%, following the Turkish central bank's move to simplify policy and its decision to stop using reserves to support the currency.?

The lira's decline has been fueled by President Tayyip Erdogan's backtrack on unorthodox economic policies, including cutting rates despite high inflation. The central bank recently raised rates by 650 basis points and rolled back regulations to encourage market freedom and stability. The use of reserves to protect the lira before the election led to a historical low in reserves, but they have since started recovering.?

The central bank's measures have been aimed at freeing up markets and providing room for banks to adjust their positions. The easing of regulations has also led to a decline in deposit rates, and the banking sector has responded positively to the developments.?

SOURECE: REUTERS,?Daily News, Daily Sanah

CRE & Tourism in EU

Greece:?Athens Hotel Occupancy Levels Rise in First Five Months

Occupancy levels at hotels in?Athens?increased by?31.3 percent?in the first five months of the year compared to 2022 reaching?68.9 percent?but were still down by?4 percent?over the same period in?pre-Covid 2019.

According to the latest data released by the?Athens-Attica & Argosaronic Hotel Association?(EXAAA) in cooperation with?GBR Consulting,?occupancy levels?in May reached 88.5 percent up by 7.9 percent over 2022 (82,0 percent) and close to 2019 levels (88.2 percent).

Average daily rate (ADR), meanwhile, at Athens hotels in the January-May period increased by?19.5 percent over 2022?and by 21.4 percent compared to 2019.

Indicatively, a hotel room in Athens went for an average?117.36 euros?up from 98.21 euros in the corresponding period in 2022 and from 96.70 euros in the first five months of 2019 boosted by May rates which came to?154.66 euros?compared to 125.77 euros in 2022 (+23.0 percent) and 119.76 euros in 2019 (+29.1 percent).

“The forecasts show Athens as a very strong ‘player’ in the European and international tourism scene for the next few years… However, what is required is for Athens as Greece’s capital city functions properly and as a 12-month tourist destination (for tourists, business travel, cruise, etc.) with what this requires or entails,” the association said.

Among other things, the hotel association called for solutions concerning the legal framework around the short-term rental market as well as the need to improve the city’s tourism infrastructure (such as the creation of a metropolitan conference center.

Portugal: Rental prices up 9.4%

The national institute for statistics (INE)?reported that 24 300 new lease contracts were signed in Portugal at the start of 2023, which constitutes the second-highest number recorded since 2020.

According to an article published in?idealista; at a time when?buying a home?is more expensive, the rental market remains dynamic and the increased number of people turning to renting isn't purely due to the high prices of property, but also as a result of the higher costs of financing.

Median rent rose to nearly 7 Euros per square metre

As demand continues to outweigh existing supply,?the cost of rent?has risen again. Provisional data from the INE revealed that in the first quarter of 2023, “the median?rent?of the 24 300 new?lease contracts in Portugal?reached €6.74 per square meter (€/m2).”

This value represents a year-on-year increase of 9.4% in rental costs. This rise was noted to be “lower than the year-on-year change recorded in the fourth quarter of 2022 (+10.6%)”, in a?bulletin?published on June 27.

Rental prices were 2.5% higher in the last quarter of 2022

The highest rental values were observed in the last quarter of 2022 when they reached 6.91 €/m2. So in comparison to this period, it could be argued that?house rental costs?fell by 2.5% in the first three months of 2023.

SOURECE: Google News, GTP, Greek City Times, PORTUGAL NEWS, Daily News, Daily Sabah?

Market Performance & Institution Views

CBRE- Global Real Estate Investment Continues to Fall in Q1

Global commercial real estate investment declined by 55% year-on-year to $147 billion in the first quarter. Investment in the Americas dropped by 56%, Europe saw a 64% decline, and the Asia-Pacific region experienced a 20% decrease. High interest rates, tight credit conditions, and deteriorating economic prospects were the primary factors contributing to the reduction in investment activity.

In the first quarter, the multifamily sector attracted the highest amount of investment at $34 billion, although it declined by 64% compared to the previous year. Industrial investment decreased by 55% to $33 billion, while office investment dropped by 64% to $31 billion. Retail investment declined by 32% to $29 billion.

Europe experienced the biggest decline in investment in the first quarter, with a 64% year-on-year decrease to $37 billion, driven by rising interest rates and economic uncertainty.

Office investment in Europe declined by 74% to $9 billion in the first quarter of 2023. Despite relatively favorable return-to-work conditions, the European office market has shown divergence, with investors primarily targeting high-quality assets.

Industrial investment in Europe dropped by 70% to $6 billion, but due to overall strong fundamentals, investor demand for industrial properties is expected to persist.

Retail investment in Europe declined by 46% to $7 billion in the first quarter. However, increased international tourism may boost the industry, despite the pressure from high inflation on consumers.

Multifamily investment in Europe decreased by 63% to $8 billion in the first quarter. Despite weakened demand due to rising debt costs, the sector is expected to maintain resilience due to strong fundamentals.

SOURECE: HNR, CRE HERALD, Hospitality Investor