The euro, as explained in the first part of this series (see pages 27–29 of Institutional Real Estate Europe, December 2019), was, and remains, deeply flawed. During the Global Financial Crisis (GFC), the single currency led to the failure of the euro, deepened the crisis, and impaired the speed of recovery.

Within the euro zone, cap rate uncertainty fundamentally reflects, in part, the structural problems of the euro itself. And this uncertainty particularly affects exit cap rate risk, especially for opportunistic and value-add investments. Even so, the euro zone today provides fertile investment opportunities, but only if investors understand the risks that its currency presents.

The euro zone currency union is modeled after that of the US. However, their structures, functions and performances are very different. The states in the US and the nations of the euro zone both feature fixed exchange rates, free capital flows, and no sovereign monetary autonomy.