Pressing regional and global issues gave delegates food for thought at the recent ULI conference. Richard Lowe was there
Uncertainty was the ever-present theme at the 12th annual Urban Land Institute (ULI) conference in Paris in February, whether it related to the health of the global economy, the true significance of today's real estate downturn or the feasibility of achieving a unified EU-REIT regime.
There was even the prospect that the health of the planet itself will one day have far more serious implications for the real estate industry than any global economic recession. Climate change and sustainability in the built environment is not an issue that sits naturally on the agendas of real estate developers and investors. There has certainly been more talk on the subject in recent years, but it has yet to really feature anywhere other than on the periphery of the industry's radar.
However, ULI afforded a prime spot to David King, former chief scientific adviser to the British government and director of the Smith School of Enterprise and the Environment at the University of Oxford.
King began his talk with pure science - not normally a common feature of real estate conferences - concluding that unless action is taken to reduce the current amount of carbon dioxide (CO²) production, we will see a return to "the very high temperatures the planet had 50 million years ago", which incidentally is not conducive to human survival.
"At that point," he quipped, "you really would be looking to build real estate in Antarctica, because the rest of the planet would be too hot and sea levels would be around 80-100 metres higher than they are now."
A discomforting fact to emerge was that the real estate industry is by no means a small player in the climate change story. King explained that, for example, the built environment accounts for half of green gases produced in the UK.
Inevitably, any change on the part of the real estate industry is going to come from legislative and regulatory influences rather than any form of self-motivated altruism.
King said this is recognised by the British government, which is planning to apply to the real estate industry the sort of "progressive legislation" that saw many cities "cleared from car pollution". By 2017, all new buildings will have to demonstrate that their "lifecycle is going to be zero carbon dioxide".
He explained, in practice this means "a building will have to farm its own energy from its environment whether geothermal, from solar, from wind or from water. It will have to generate more energy from its environment than it uses."
One potential solution is to create buildings whose surfaces ‘farm' solar energy. However, more research needs to be done, King said, to find a replacement material for silicon, which is too expensive and which "architects don't particularly like working with". More generally, alternative building materials to concrete need to be found, especially since the high temperature process required to create concrete produces carbon dioxide.
Many delegates in the room may well have appreciated these sentiments but still remained sceptical of any real relevance to their business in the medium term. But King offered an incentive: lower running costs.
"The running costs are directly related to energy consumption," he said. "One of the big win-wins of the carbon dioxide reduction programmes is from better efficiency within the built environment. The capital cost of the building therefore has to be rolled into the running cost of the building. Persuading a consumer they need to do that is [something] this industry needs to be focusing on."
The event featured another celebrity guest speaker by way of television presenter and BBC economics editor Evan Davis, who was handed the impossible task of explaining to a worried audience of developers, fund managers and investors what was going to happen to the global economy.
Davis presented three possible global economic scenarios, each with an "equal chance" of becoming reality. They were global "rebalancing", "inflation" and "recession", each getting progressively gloomy. The situation, it seems, hinges on how the current unsustainable imbalance between the US's overspending and China's heavy saving and production of cheap goods for western consumers is remedied in the future.
Davis's speech no doubt did nothing to dispel the current uncertainty affecting the industry and this was evident in a subsequent debate between panellists Karl Petrikovics, CEO of Immofinanz in Austria, Judith Mayhew Jonas, Michael Strong of CB Richard Ellis, Menno Maas from ING Real Estate and moderator Scott Malkin, chairman of Value Retail in London. The panel debate, which was one of a number of concurrent sessions at the conference, attempted to apply experience from previous periods of downturn to today's situation.
While Maas made the point that Europe today does not have the oversupply problems it did in the late 1980s and early 1990s, there certainly seemed to be a lot of pessimism in the room. A show of hands revealed that the majority of attendees expected troubles in the market to continue for at least another 12 months, while a significant number expected that it would last something closer to 24 months. If the latter section of the audience was correct, Strong noted, it would have very serious implications for the real estate industry.
Elsewhere, leaders of a coalition that had approached the European Commission over the creation of pan-European REIT legislation came together to explain their plans. The speakers included Nils Kok of Maastricht University who, together with Piet Eichholtz, has produced a research report for the coalition (see IPE Real Estate January/February 2008). Other speakers included Michael MacBrien, director general of the European Property Federation, Joaquim Ribeiro, coalition chairman and finance director of Sonae Sierra, and Simon Rubinsohn, chief economist for the Royal Institution of Chartered Surveyors. Alec Emmott, principal at Europroperty Consulting, who was involved in setting up the French SIIQ - one of Europe's first REITs - was also in attendance to add a non-coalition perspective.
Kok explained that the current collection of European REIT regimes represented an "inconsistent patchwork" that "distorts competition" since varying tax exemptions often can lead to "unequal benefits for investors from different countries". The introduction of a pan-European vehicle, it was argued, would overcome the obstacles to cross-border investments, reducing volatility and improving market security.
While Emmott believed the report by Kok and Eichholtz was important work and needed to be done, he admitted to having many doubts, not with the objective per se but with its "means". Getting the whole of Europe to decide on a blanket regime that it would adhere to was ambitious to say the least, he thought. He made the point that France itself has 270 cross-border treaties.
Emmott was keen to stress more than anything else the importance for the coalition to consult on a national level with individual members states before simply "going to Brussels".
