Ukraine: Europe’s energy costs and inflation likely first effects

Russia’s invasion of Ukraine and the resultant conflict will inevitably have widespread effects on the rest of Europe and beyond. Real Asset Media’s European Outlook 2022 – Focus on Logistics briefing was held online on the REALX.Global platform on the morning that news of the invasion was announced and speakers were asked for their initial impressions.

The first factor will be energy prices according to Sally Bruer, head of EMEA logistics and industrial research and insight at Cushman & Wakefield. The price of oil was the first indication and she pointed out that the price of Brent crude breached $102 per barrel on news of the invasion. “And potentially, the challenge to the Nord Stream Two pipeline – the German government halted progress on the sub-Baltic Sea pipeline which would link Germany to Russian gas sources – will be a further challenge for the supply and cost of energy which will have a knock-on effect on inflation for both consumers and business.

“The other thing is potentially supply chain disruption. Whether or not it will be significant will depend on how prolonged the conflict is,” Bruer said. She added that it will also depend on the nature of the ongoing conflict and the extent to which the disruption does spill into neighbouring economies. “There may be challenges, particularly on the manufacturing side,” she added.

There are expectations that the effects will spill far beyond the European region. “If there is an impact that will be everywhere, not only Europe, there is much more at stake,” said Raimund Paetzmann, vice president corporate real estate of the Berlin-headquartered online fashion retailer Zalando.

The implications could also have a harmful influence on international investors’ view of European assets, although Rory Buck, managing director, Clarion Partners Europe said that as yet it is too early to tell.

“My gut is, it will have some sort of dampening effect, you can already see in the European stock indexes that there’s a negative impact, but I think a lot of that is energy prices,” said Buck. But if investors’ view of the region is tarnished, the effects will be widespread. “That contagion would seep into any investment class which is which is exposed to Europe,” he added.

But Buck added that the logistics property sectors’ fundamentals are strong. It is too early to tell if the negative impact will be enough to actually affect yields and it is less likely to have an impact on rents, “because they’re just structurally driven by development inputs and the supply demand imbalance.”