As maintained in the second part of this series of articles (see pages 27–30 of Institutional Real Estate Europe January 2020), investors in the euro zone should appreciate certain risks that the euro itself introduces.

These structural risks can profoundly affect real estate performance through various transmission channels that include the exit cap rate, rental growth and tenant default. The effect can be particularly acute for value-add and opportunistic investments.

The euro zone’s economic structure consists of fixed exchange rates, free cross-border capital flows, and lack of sovereign monetary autonomy. Euro-zone nations typically lack the resources to fund countercyclical measures or support a strong social safety net. The European Commission is loath to redistribute financial resources from rich to poor nations. Hence, each euro-zone nation, which is left to its own devices during a downturn, risks bearing severe asymmetric shocks.

A nation