What do Europe’s property leaders hope for and fear in 2018? PropertyEU asked a dozen CEOs to predict what will impact their business most in the year ahead.
Following a strong performance last year, European real estate is set for another bumper year in 2018 as economies continue to expand and occupier fundamentals improve against a backdrop of continuing low interest rates and abundance of capital. Markets appear to have learned to live with (geo)political uncertainty and in terms of investment levels and pricing, the feeling is that the current boom will go on forever, say a dozen leading European players polled by PropertyEU.
Unsurprisingly, therefore, most predict that their companies will expand further in 2018, although for many this will depend on whether assets are available. ‘Availability of investment product and pricing are a concern, but nor fear,’ says Francois Trausch, CEO of Allianz Real Estate. ‘Putting capital to work will remain a key challenge in the coming year,’ notes Isabelle Scemama, CEO of AXA IMRA.
But when will the current cycle end, and, more importantly, what will bring it to an end? Despite historically high capital values and signs that global interest rates are set to tighten, there is little evidence that the cycle – now into its ninth year – will come to an abrupt end. ‘There is a danger that the market convinces itself that the cycle will go on forever,’ says Alex Jeffrey, CEO of M&G Real Estate. ‘It won’t – all cycles come to an end either through natural causes driven by underlying economics or a specific occurrence,’ he adds.
Interest rates and geopolitics
Higher interest rates and a geopolitical event are the most likely triggers for a slowdown or downturn, but neither appear imminent, says Rob Wilkinson of AEW. ‘We do not anticipate that interest rates will increase that rapidly and believe a low-growth, low interest rate environment is here to stay.’
After all the initial fuss about its likely impact, Brexit is now downplayed by many real estate leaders who do not see it having any substantial impact until 2019 when the UK’s departure from the EU is finalised. Thomas Wels, head of REPM at UBS Management, remarks that the negative impact on the UK property market from the uncertainty surrounding Brexit ‘seems to have been fairly muted’. In general, the effect of political uncertainty on real estate markets ‘can be overstated’, he concludes. ‘Political noise will undoubtedly continue in the background but as 2017 has illustrated market fundamentals generally beat uncertainty.’
But for Jeremy Plummer, head of EMEA at CBRE GI, the greatest potential for a European upset this year ‘is likely to be political – whether a shock/disruptive result in Italy; a further deterioration in the Catalan situation; or something external from the Middle East causing an oil price shock; or even Asia, with a hard landing in China’.
Technology
With virtually no exception, real estate leaders cite technology as having the biggest long-term impact on their business. ‘Definitely technology/digitalisation, combined with changing demographic trends,’ says Allianz’s Trausch. ‘It is happening now, it affects the way we live, work, shop and play. This is the biggest disruption the industry has faced so far. CBRE GI’s Plummer concurs: ‘Technology continues to have a profound and constant structural impact on retail and logistics in particular.’ Robert Dobrzycki, CEO of logistics developer Panattoni Europe, says: ‘Technology will have the biggest impact on our industry. The e-commerce boom and the infrastructure needed to serve this flow of products is possible thanks to innovative, advanced systems.’ And Stefan Machler, group CIO of Swiss Life, describes technology as ‘certainly the biggest game changer – although it might take longer than anticipated’.
For some, the trigger to end the current cycle may come out of the blue, ‘something from left field that no one predicts’, says M&G’s Jeffrey. Or, as Scemama puts it: ‘The next downturn is most likely going to be something that almost no one has thought of.’
Click on the links below to read the individual CEO forecasts:
Robert Dobrzycki, CEO Panattoni Europe
Alexander Otto, CEO ECE Projektmanagement
Isabelle Scemama, CEO of AXA IMRA
Stefan Mächler, group CIO of Swiss Life
Georg Allendorf, head of real estate Europe at Deutsche Asset Management
Francois Trausch, CEO of Allianz Real Estate
Thomas Wels, head of REPM at UBS Asset Management
Jeremy Plummer, head of EMEA at CBRE Global Investors
Barbara Knoflach, deputy CEO of BNP Paribas Real Estate
Alex Jeffrey, CEO of M&G Real Estate
Mike Sales, CEO of TH Real Estate
The CEO Forecast special features in the January/February edition of PropertyEU Magazine
