A prolonged financial crisis: adjustments and prospects in Eurozone's southern markets

Pages94-102
Date28 January 2014
DOIhttps://doi.org/10.1108/JPIF-11-2013-0065
Published date28 January 2014
AuthorSotiris Tsolacos
Subject MatterProperty management & built environment,Real estate & property,Property valuation & finance
PRACTICE BRIEFING
A prolonged financial crisis:
adjustments and prospects in
Eurozone’s southern markets
Sotiris Tsolacos
ICMA Centre and School of Real Estate and Planning,
Henley Business School, University of Reading, Reading, UK
Abstract
Purpose – The economic slump in the southern member states of the Eurozone has brought real
estate market activity to a standstill and has raised questions about the future of these markets. Will
they rebound and will they command a higher risk premium? This paper aims to assess the outlook for
these markets as the crisis continues and analyses the conditions that are a prerequisite to restore
investment activity and a healthy occupier market.
Design/methodology/approach – Within a portfolio allocation framework, the paper examines the
conditions for the revival of investor interest in these markets and the uncertainties that should be
resolved. Through the analysis of selected data, the paper assesses the emerging state of these
markets.
Findings – The economic slump in peripheral Eurozone economies gives way to a period of slow
growth and ongoing structural reforms. The latter are necessary to restore confidence in the respective
economies and investment markets. Sentiment indicators contain the first signs of a rebound in
business confidence. With confidence returning and mitigated macroeconomic risks investors will
seek value in the markets of the southern region on a selective basis. Price corrections and yield
differentials with core markets could prove attractive. It is, however, argued that a risk premium will
remain to reflect progress with structural reforms that will make the economies more competitive and
less prone to a similar crisis in the future. It is only when such reforms will firmly be put in place that
pricing in the southern Eurozone markets will reflect cyclical risks and diversification contributions.
Practical implications – The article provides a structured approach to assess the outlook for
peripheral markets. It identifies the key risks affecting investor confidence. The analysis proceeds to
stress conditions that should be satisfied for a rebound in the investment market. Signals from selected
data series are extracted to assess sentiment and adjustment in the market and assist in the
assessment of real estate market prospects in these economies.
Originality/value – The paper examines conditions for investing in the hard hit markets of the
Eurozone. It illustrates the path for the recovery in these markets and the conditions for the rebound in
investment volumes. It contributes to the analysis of the growth potential and risk of these markets for
investment purposes.
Keywords Eurozone crisis,Market adjustments, Outlook,Peripheral economies
Paper type Research paper
1. Introduction
Eurozone’s peripheral economies have been hit hard by the global financial crisis
which was accompanied by major banking sector problems and the high sovere ign
debt levels that made markets unwilling to finance them (Portugal and Greece) or fund
them but at a higher cost (Spain and Italy). Austerity programmes pursued by
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/1463-578X.htm
Journal of Property Investment &
Finance
Vol. 32 No. 1, 2014
pp. 94-102
qEmerald Group Publishing Limited
1463-578X
DOI 10.1108/JPIF-11-2013-0065
JPIF
32,1
94

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