After many months of intense and unusual presidential campaign, which captured the attention of public opinion all around the world, Americans made a surprising choice. The Republican Party candidate, Donald Trump, won the presidential election, and the Republicans now control the Senate, and thus the whole Congress.
 
In the case of the referendum on Brexit, the forecast could be compared to a single toss of a coin: for or against. But the result of this year’s presidential election in the US was more difficult to predict. Donald Trump had to win in most of the so-called swing states, or states that usually settle the fate of the campaign.
 
Donald Trump’s victory means uncertainty and a lot of unknowns, which in the short-term can have a negative impact on risk assets, especially equities. The first effects can already be seen in the stock markets in Asia and Europe. Hovewer, as in the case of Brexit, we believe that the share price will rise when investors will “digest” the decision of US voters and realize that the influence of Trump’s presidency on the market will ultimately be lower than initially expected. Its effects will be known only after some time.
 
But what this result means for commercial real estates? Our sector is not a stock exchange market and is not subject to sharp fluctuations and daily changes. Let us take a closer look at potential consequences.
 
What could this result mean for the financial markets in Europe?

Increased uncertainty and instability. Trump’s presidency may result in an increased instability in the financial markets in the coming days and weeks. However, as evidenced by the other recent shocks, short-term volatility in the financial markets does not necessarily translate into an immediate or significant impact on the economy and real estate markets.

Comparisons to the EU referendum in Britain are inevitable. Brexit caused a sudden shock, but it did not have a negative impact on the UK economy. Since the referendum, UK GDP has grown in the third quarter by 2.0% year on year, and the stock markets have grown in value by 9%. The US economy has strong foundations and will remain the engine of global growth. In the third quarter of this year, real GDP growth in the US amounted to 2.9%, which is the highest in two years. Both consumers and businesses remain positive, and the situation in the labour markets is optimistic, to say the least.

Dollar, pound and euro. In the face of uncertainty American dollar usually gains in value, but we expect that the Federal Reserve System will review plans to raise interest rates, which could weaken the US currency. This, in turn, may initially strengthen the position of pound and euro. However, euro appreciation will be an additional challenge for the euro zone as the European Central Bank is running short of tools to stimulate economic growth, ans a strong currency will not help.

Risk aversion may cause further influx of capital to the European bond markets. In times of uncertainty, investors traditionally seek the safety provided by the bond markets. This will translate into higher prices and decline in the profitability of such instruments. Demand for bonds and their prices have already risen due to the continued risk aversion and the policy of quantitative easing. This means that investors will invest their capital in safe assets, which in turn will lead to the increase in the pricces of commercial properties in Europe, which are an attractive investment alternative.

What could this result mean for European tenants?

In fact, no major changes. The situation in the rental markets in the UK and other European countries is unlikely to change unless the economic situation gets significantly worse. Upward pressure on rents in markets such as Barcelona, Dublin and Munich will remain, while cities such as Moscow, Istanbul and Warsaw will be tenant markets.

The European economy continues to boom and creates jobs. It should be noted that the rents in many key cities, such as Berlin, Milan and Madrid, are rising. In addition, the results of Brexit, which also turned out to be a big surprise, did not affect the level of demand in EMEA rental markets.

Demand for commercial space in London declined due to Brexit and reduced business investments. But this is not true for other cities in the British Isles. The durability of the decline in rental markets in London to a large extent depends on the negotiations on leaving the European Union, but the results of US elections will not affect it, unless the economic situation in the world worsens significantly.
 
What could this result mean for European investors?

Lower and longer yields and increase in property prices. We should expect an increase in risk aversion due to the sense of uncertainty that prompts investors to seek safe investments. The interest in core assets will increase, as well as the activity in the markets with little demand for increased risk products.

Due to the critical importance of capital safety, investors will locate it mainly in European bonds. The long end of the yield curve can get even lower. This will lead to the downward pressure on the yields of government bonds, which in turn will lead to yield compression, especially in the case of core assets.
 
Given the fall in yields, some commercial real estate markets in Europe will be overvalued, but in the short term, prices may rise significantly. What is more, in recent years the most attractive real estates have been perceived as an alternative to bonds. Mild monetary policy can contribute to a further decline in yields for prime properties.
 
Closing remarks

The results of the US election will not change the foundations of commercial real estate markets in Europe that encourage investments across the continent, despite the short-term risk aversion in broader financial markets. We predict that investors will remain active and will invest a record amount of their capital in commercial real estate markets in Europe. One can speculate that capital flows to Europe will increase at the expense of the US, but due to the upcoming elections in France and Germany, it is too early to say how the results of the US elections will affect voters in Europe.