Maarten van der Spek: The US dreams of yesterday, Europe works on tomorrow
This column was originally written in Dutch. This is an English translation.
By Maarten van der Spek, Spek Advisory & Adjunct Professor Real Estate TIAS Business School
Politics generally plays little role in investors' strategic allocation. However, the current geopolitical movements are structural. It is time for reallocation, particularly towards Europe.
Anyone who has been involved in the financial markets for some time knows that political unrest is usually temporary. Prices may fluctuate in the short term, but markets are robust in the long term. This principle applies even more strongly to real estate. Its illiquid nature, long maturities, and contractual income ensure stability, even when the news from The Hague or Brussels is turbulent.
But what we are seeing today is different. The geopolitical shifts in the world are not ripples on the surface, but structural movements that could rewrite the rules of the game for a long time to come. And that calls for renewed strategic choices from institutional investors.
Take the US, for example. Where the ‘America First’ policy once began as a Trump slogan, it is now firmly entrenched in the political arena. Protectionism is no longer a fringe phenomenon, but the norm, while policies are being pursued that polarize rather than unite. At the same time, the US budget deficit is rising rapidly, and the new ‘One Big Beautiful Bill’ does nothing to change that. This means there is a high chance that inflation will remain a problem, which could then translate into uncertainty about creditworthiness, the economy, and interest rates. Not exactly the foundation you are looking for as a long-term investor in real estate, where you are committing yourself for the longer term.
On the other side of the Atlantic, we are seeing a different movement in Europe. Although populist parties have made gains recently, the democratic core appears to be strong enough to continue pursuing stable policies. Moreover, there is a growing realisation that Europe must become more attractive to capital and talent. The first signs are visible: rules are being relaxed, investment is being stimulated and collective defence is finally being taken seriously. This is also starting to catch the attention of investors outside Europe.
While the US appears less reliable strategically, Europe is still seen as reliable and stable, and opportunities are emerging. Real estate offers a compelling story in this regard. Valuations in Europe have been corrected significantly following the interest rate hikes of recent years. At the same time, we are now seeing a recovery in investor sentiment and an increase in real estate investment.
In addition, interest rates are now falling, while the outlook for rental growth is positive. In many European countries, strict regulations have also meant that new construction has been very limited and is hardly getting off the ground, which means that supply is and will remain limited. This scarcity could translate into positive value growth.
The time has come to review the allocation. The geopolitical reality has changed structurally. Increasing the allocation to Europe is not a tactical move, but a strategically necessary step. Not adjusting is also an option, but the consequences could prove costly in the long term. Europe may not be shouting from the rooftops that it is ‘great again’, but it is attractively priced and policy developments are positive, and that ultimately outweighs an inflated slogan.
