Commentary by Damian Harrington, Head of EMEA Research at Colliers International
The geopolitical diversity of the EMEA region means that there are multiple economic and business permutations to consider in light of a new first term for President Biden and the Democratic party. There is a strong likelihood that the EU and national EEA (European Economic Area) governments will cooperate more openly with the United States under President Biden. Outside of the EEA, in Middle East, Africa, Russia and Turkey ongoing relationships will be more mixed.
3 key elements will impact economies and commercial real estate in the EMEA region:
- International Trade | Reduced tariffs will support European import and export business, supporting and stabilising demand for industrial real estate.
Biden’s camp has made it clear that it would take concrete steps to end what they call Trump’s ‘artificial trade war’ with the EU while working to address imbalances in trade between the partners. Reparation of NATO and alliance relationships should take much short-term economic and trade uncertainty off the agenda, but this will not change the need for Europe to become more independent and absorb the cost of its own security. This will come in the form of higher taxes over the mid-term, placing a drag on economic output, but will enable the European region to develop trade partnerships both West and East. Divisions over Iran should become less stark under Biden, negating the pressure the UK may have faced to split from European allies or risk tougher US sanctions. On the flipside, a future US - UK trade deal hangs in the balance, dependent upon the process and result of the imminent UK – EU trade deal.
- Corporate Investment | European investment levels will be impacted by the extent to which Biden gets to enact regulatory and tax changes.
If Biden is able to enact change, a larger fiscal stimulus will likely counteract a higher taxation and regulatory burden, particularly for the U.S. consumer, limiting the impact on European export demand. However, tax changes could result in weaker US earnings short-term, particularly for US tech stock. Given the prevalence of the US tech sector in European office markets, especially the fabled “FAMANG” group (Facebook, Amazon, Microsoft, Apple, Netflix, Google), lower US FDI into EMEA could transpire, reducing European office demand. Given that the tech sector accounts for 15% of office-based employees and 18% of the office-based economy in European cities, this is one to watch. That said, European corporates should benefit from a stronger bounce back in earnings than their US peers in 2021, providing the opportunity to expand their corporate footprints, particularly in areas such as renewable energy.
- Climate Change | Improved energy efficiency has major implications for real estate use, flexibility/adaptability and location and particularly for construction, project and asset management. This is being amplified by the need for cities to come to terms with how to operate in a new, post-COVID ‘normal’.
A Biden victory not only supports the global climate change agenda, but also accelerates the growth of the burgeoning renewable energy sector, which has been a key component of FDI activity across EMEA in recent years. Renewable energy is one of the key pillars of the new, long-term E.U. 2027 budget to generate an extra 500 GW of renewable power, alongside 3 million new hybrid vehicle charging points and 1.000 hydrogen stations by 2030. Legislation is already coming into play in the Netherlands, with the UK to follow, restricting commercial leasing to assets that meet high energy efficiency standards. Given their high dependence on power, Data Centre assets are likely to come under scrutiny as to their long-term Environmental, Social, and Corporate Governance (ESG) credentials.
A Biden victory supports the growth and adoption of more consistent ESG strategies across North America and Europe, if not globally, given China’s surprise September announcement that it aims to ‘decarbonise’ by 2060.
This creates a foundation for global investment managers to increase the weighting of sustainable real estate assets in their portfolio, which is of increasing relevance to corporate occupiers and equity stakeholders.
The UK Chancellor, Rishi Sunak, recently set out plans to launch the UK’s first green gilts to fund low-carbon infrastructure projects and bolster the UK’s position as a world-leading green finance hub. The UK will join 16 countries to have launched green gilts, including Germany and Sweden – both of which saw their initial green gilt issues oversubscribed – demonstrating the strong and growing appetite for ESG investments.
Read more in A Tale of Two Outcomes Part 2 where we have set out an outlook on what this means for the US, AsiaPac and EMEA regions, but in the clear context that the effectiveness of Biden’s first-term could change significantly between now and his inauguration.