Europe: Currencies, Stocks, and Real Estate

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

March 2005

Recently your humble author has done some research on Europes currencies, stock markets, and real estate, and decided to share some of the findings with readers: 

A)     Data and information sources: these include published professional reports, government statistics, and websites such as those of Cushman & Wakefield and Yahoo! Finance.

B)     Countries included = they range from the West-North such as UK, France, Germany, Belgium, the Netherlands, Sweden etc, via Austria, Switzerland, Czech Republic etc in the centre, to Russia and Italy in the East and South respectively.

C)    Currencies = compared to the US$, most European currencies have become higher albeit in varying extent, despite there have been ups and downs along the way.

D)    Stock markets = as expressed by the various stock market indexes, most markets have experienced gains recently, with that of the Czech Republic, Turkey etc showing 40% or more. Belgium, Denmark, and the like have done well too with Germany and France being steady. Russia has comparatively been lackluster for the past year or so.

E)     Real estate markets = these are based on their office and retail sectors, and many of the countries in the study have shown signs of recoveries in recent times, such as France and Germany, while others appear to be still in the doldrums, such as Russia. There are also a few markets in which one sector seems to have done better than the other. In terms of (prime) office rental rates, the UK seems to lead the others, while for the (prime) retail rental rates, the UK, France, Spain, and Ireland seem to harbor some of the highest rents in Europe.

F)     There is little or no correlation between the various currency performances and their respective stock market indexes = and this is based on cross-market comparison, either in the positive or negative directional sense.

G)    There is also little or no correlation between the various stock market indexes and their respective real estate markets = i.e. observed performances in these stock markets give very little indication of the real estate market performances, and vice versa.

H)     There is some correlation between rental values and rental growths across markets = especially with the office sector, and generally markets / cities having a comparatively high office rental rate tend to have a comparatively high retail rental rate too, though there are a few exceptions.      

I)        There is a very strong correlation between office rental and retail rental yields = with the R2 exceeding 0.90. In terms of nominal values, some markets have single-digit yields while others have double-digit yields, yet by no means this implies the latter being better for investments, as a high yield rate may be indicative of high vacancies, low asset values, and / or poor economy etc.

The above observations are only reflective of the overall situation in recent times, and may not (or may) represent the long term trend, either past or future.

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.  

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