While not all the news was negative, uncertainty over interest rates cast a shadow over the European Public Real Estate Association's conference in Paris, Rachel Fixsen reports.
Place de la Concorde in Paris – a stone's throw from last week's annual conference of the European Public Real Estate Association (EPRA) – is surely a reminder of how starkly times can change.
Its visual harmony and position at the foot of the serene Jardin des Tuileries belies its past: as the Place de la Revolution, the square was once stained with the demise of Marie Antoinette and Robespierre alike.
Less bloody, certainly, but the EPRA conference had its own spectre of changing times. What would rising interest rates do to property markets?
Long government bond yields jumped in June after the US Federal Reserve pointed to an easing of its bond-buying programme later this year. In August and into September, yields have continued to climb.
"Interest rates are the one thing everyone's worried about right now," said one conference participant.
But it was hard to worry with the sunshine outside and the conference opening to the music of Charles Aznavour's "For me… formidable".
Two economists offered perspectives on interest rates and the euro-zone, "dans la langue de Shakespeare". European rates would rise, according to economist Ian Shepherdson of Pantheon Macroeconomic Advisors, but US long-term rates could drop below 2.25%, at least for a while. Meanwhile, Oxford University economist Andrea Boltho was uncertain about the future of the euro-zone itself. Things did look better today, but there were still issues, he said, such as the huge gaps between the North and South in terms of GDP, unemployment and real exchange rates.
But comfort was at hand. Even if interest rates were rising, perhaps it wouldn't be the big deal property people assumed. Nick Webb of Exane BNP Paribas showed there was, in fact, no long-term statistical correlation between UK property equivalent yields and nominal Gilt yields.
And heads of US and UK property companies pointed to areas of the market that were likely to grow over the next few years. Edward Walter, chief executive of Host Hotels & Resorts in the US, saw the possibility of European hotel REITs, albeit in several years' time. None had yet come to the market, he speculated, because companies had not accumulated enough assets to merit going public. "It's conceivable to me that you'd see that change," Walter said, "but it doesn't seem like it's progressed to that point yet."
William Stein, CFO and CIO of US data centre company Digital Realty, named London and Amsterdam as the markets the company would target for more development. Having access to capital on both the US equity markets, as well as the public debt market in Europe, was a big help in expansion, he said. "We do have a significant advantage to indigenous competitors," he added.
David Sleath of the UK's SEGRO said data centres had been a "fantastic growth area for us". Mark Allan of UK student housing provider UNITE Group said low prices on land outside London meant potential high yields on developments in the regions. "For us, that regional opportunity is at least as exciting as London," he said.
There was no shortage of evidence at the conference indicating potential expansion for the listed real estate sector. Alex Moss, managing director of Consilia Capital, told participants portfolios mixing listed real estate with non-listed holdings had produced 50% higher returns over the last 10 years than those containing non-listed alone.
Martin Hoesli, professor at the University of Geneva, presented a study showing that, once leverage was stripped out, both listed and non-listed real estate investments gave similar performance, both in terms of return and risk.
And Dirk Brounen of the TiasNimbas Business School in the Netherlands, calculated that some €186.5bn of potential real estate investment could enter European stock markets over the next few years, as companies acted ahead of the new IFRS rules set for 2016.
So far, so positive for listed real estate. It fell to Colin Lizieri, professor at Cambridge University, to ask the awkward questions. Was it possible to say that REITs had the advantage of providing liquidity, he asked, while also promoting the vehicles as behaving like underlying property – which they only did in the long run? Lizieri also wondered how it was possible to get the returns from listed property on a de-leveraged basis. "How are you practically going to do that?" he asked.
By leaving time, clouds covered the Paris sky. The big question of interest rates remained unanswered as delegates hunched over suitcases and laptops in the hotel lobby.
Other questions hung in the air too. What exactly had the official from China's Banking Regulatory Commission said in the session that was closed to the media? And where was Charles Aznavour when you needed him?