ULI, Paris: Technology, QE and foreign capital dominate talks
The Urban Land Institute is not alone in encouraging delegates to install apps and tweet while attending conferences. The role and use of technology in the real estate sector was one of the key themes at this year’s annual conference held in Paris.
For example, London’s Kings Cross district – at the other end of the Eurostar line – was highlighted as an area undergoing change as a consequence of the emergence of new technology. Speaking on a ‘disruptive forces’ panel, Cushman & Wakefield’s senior director for EMEA, Peter Victor, highlighted the opportunities that the likes of Amazon, Twitter and Google are bringing to the real estate sector.
In a survey of delegates, 70% said mobile tech and smart phones were the main factor in the evolution of real estate. But technology’s impact on the built environment raised questions over why remote working had not evolved to the extent observers had predicted following the global financial crisis.
With media and technology sectors aware of the need to be located in city centres, demand for office space has increased, Victor said. In San Francisco, rents are rising as a consequence of the arrival of “big tech” firms, he said, while their smaller counterparts are moving to cheaper, less central locations.
Technology and its role in the retail sector was also discussed at this year’s conference. Speaking on a ‘future of retail’ panel, Josip Kardun, CEO of Atrium European Real Estate, said investors needed to understand the distinct generational differences in shopping habits. Co-panellist and Metro Properties managing director, Jurgen Schwarze, said there were risks for investors who “do not understand the needs of customers”.
While CBRE Global Investor’s EMEA chief executive, Pieter Hendrikse, highlighted the importance of millenials, demographic change was said to be playing an increasing role in US investment strategy, LaSalle Investment Management’s US chairman Lynn Thurber pointed out. The investment manager had changed its focus in the US, she said, looking beyond the likes of Boston and Silicon Valley for demographic shifts. It had also pulled back from an office investment in Houston following falls in oil prices.
Oil price fluctuation and more macro-economic issues, such as the European Central Bank’s (ECB) recent announcement of a €1.1tn quantitative easing programme, were considered by keynote speaker, Eric Chaney, AXA Group’s chief economist. With central banks printing money “like never before”, Chaney said the world was “better with excess liquidity than a liquidity crunch”. The real estate sector could enjoy advantages in a “low interest-rate environment for a long period”.
With Germany willing to underwrite France and Italy, the “bargain between fiscal support and structural reforms is here to stay”, Chaney said, voicing concern for Europe following Greece’s election of an anti-austerity government. “The Greek situation is quite worrying,” Chaney said. “Greece could be cut off – there is the possibility of contagion this year.” Debt relief for Greece could mean “other countries then ask for the same”, he said. “Spain and Ireland could also ask for that too, so there will be political consequences.”
Despite concerns over Greece and Russia, the QE programme offers investors downside protection, said Jack Chandler, global head of real estate at BlackRock, during a ‘follow the money’ panel.
Jon Zehner, global head of client capital at LaSalle Investment Management asked why Europe was still attractive to investors. Comparative pricing in Asia and the US was a driver, delegates heard. Goodwin Gaw, founder of Gaw Capital, said Europe was, on a relative basis, “cheaper than tier-three cities in China”. Europe was set to see a quadrupling of investment by Chinese capital this year, he said.
Chandler said more capital would come to Europe from North America but many investors had the “same shopping lists”.
US pension funds still have appetite for real estate, Charles Graham, principal with Europa Capital, agreed, but will not “come for core” and are less likely to commit to funds. Investing in European real estate directly rather than through funds – a strategy pursued by Ontario Municipal Employees Retirement Systems (OMERS), which recently bought through Oxford Properties – is a sign of things to come. “We will see more of that,” he said.
Graham said that with global ”dry powder” of $217bn in the market, the amount of capital is putting pressure on real estate pricing. ”Managing (investors) expectations is the issue,” he said.