Understanding the unpredictability of the future is as important as learning from the past when facing global market upheaval. This was one of the messages at this year's annual EPRA conference. Richard Lowe reports

The real estate industry has repeatedly looked back to previous upsets to make sense of the current global financial and economic crisis. Industry leaders who have been through the ups and downs of cycles of the past are able to bring a more measured perspective to the table and temper the all-pervading messages of doom and gloom. This was certainly true at this year's annual EPRA conference, which was held in Stockholm in September.

For example, Tim Wheeler, chief executive of UK warehouse specialist investment trust Brixton, recalled how he emblazoned the front cover of the company's half-year report with a drawing of the four horsemen of the apocalypse, reflecting the anxiety of the market. But he was clear that well-run real estate companies with focused strategies, particularly those working in niche sectors, would outperform.

Graham Roberts, finance director at British Land, also cast some optimism, stating that the real estate markets are in a cycle and "will come out of it". If in 2020 you were to look back in time, he said, you would see the start of strong resurgence in property, with the listed sector taking centre stage.

Economist and opening keynote speaker Anatole Kaletsky identified the million-dollar question: Is this really a once-in-a-lifetime situation - a crisis to end all crises - or simply a temporary blip? Kaletsky, known for his economic commentaries in The Times newspaper and chief economist at fund management, research and advisory firm GaveKal, pointed out that all the preceding crises were described at the time in apocalyptic terms by some of the world's leading economic commentators only to transpire to be much less serious.

Indeed, extolling the value of experience in uncertain times has been a recurring theme at recent conferences. But delegates in Stockholm were also shown the limitations of relying too heavily on the past to deal with the future. Wolfgang Grulke of think-tank FutureWorld produced a, sometimes frightening, presentation on the unpredictability of the future, the exponential acceleration of technology and how long-established industries can be rendered defunct practically overnight. Grulke stressed the importance for companies to be brave enough to adapt to a changing world, even if it means adopting technologies or strategies that threaten their very businesses.

An example was given of an employee at electronics giant Sony who had created the technology for an mp3 player four years before Apple released the iPod. Sony rejected it because it was seen as a threat to its Walkman product. It certainly was, as the rise of digital music has shown. It is these "big step changes", as Grulke describes them that can threaten industries almost overnight.

The message it seems was that  Sony should have embraced the technology that appeared to threaten its core business because, as Grulke said, you should not be afraid to "eat yourself before somebody else does".

There are a number of potential big step changes that could have repercussions for the commercial real estate industry. It is not inconceivable that leading corporates will start moving away from the tradition of basing all employees in large offices, in favour of more flexible working environments.

A more shocking prospect is that the technology is already available to create clothing, mobile phones and other commodities with what can be described as a 3D printer. This certainly has sounded the first death knell for traditional manufacturing in the long term.

Of more immediate concern than technological innovations on the horizon is the economic outlook for Europe and the effects this will have on the fundamentals of real estate on the continent. For months all attention has been on the US, looking for signs that the world's largest economy is on the brink of recession. Alongside this has been an ongoing debate over decoupling, relating to whether Europe - or emerging markets for that matter - would catch a cold when the US sneezes.

The tables have turned, it seems, if Kaletsky's speech is anything to go by. He suggested the worst was over for the US economy, which had so far been "in the cockpit" of the global crisis. Europe's slowdown, on the other hand, is just starting and has the potential to be longer and more pronounced than that across the Atlantic.
John Glascock, professor at Cambridge and Cincinnati universities, agreed largely with this summary, forecasting that Europe will grow up to 2% more slowly than the US and 8-12% than China in the coming years.

China will dominate the world for the next 25 years in the way the US did from 1940-80, Glascock said. And with the rising importance of underlying productivity, Europe will be at a unique disadvantage to China and the US, which it should be noted are the largest food producers. China is also keen to develop its own service economy and the US model will be the one which it will intend to emulate.

"In 10-15 years, China is going to be really wealthy and you are going to need to trade with China," Glascock said. "To get your toe in the door you have to do something they want. And what they want now is food and the service sector. The UK and the EU is at a unique disadvantage."

EPRA made some announcements to coincide with the conference, including the widening of the FTSE EPRA/NAREIT Global Real Estate indices to encompass emerging markets and research by JP Morgan on the growing influence of sustainability.

"Sustainability will be a key differentiator for European listed real estate companies as they face increasingly stringent regulatory standards," said Harm Meijer, analyst and co-author of the JP Morgan report, at a pre-conference press briefing.
However, during the conference itself, the issue of sustainability was seldom mentioned. Chris Turner of Thames River Capital observed that "conference after conference" had promoted the topic, but expected it to be put on the "back burner" for the immediate future.

EPRA also released its discussion paper on EU-REITs and cross-border investment. It recommends a "mutual recognition" of national REIT regimes in Europe between member states and indicates that EPRA is not looking to lobby for the creation of an EU-REIT. Gareth Lewis, newly appointed finance director at EPRA, admitted it was unlikely such a vehicle would be seen in "our lifetime". Yet, given that one of Grulke's revelations was that the first people to live to 150 have probably already been born, perhaps Lewis is being too conservative.