As more than 60 major global real estate investors gathered for a series of closed-door discussions in Cannes, there was a growing sense that none could afford to sit on the sidelines and wait for the current mix of uncertainties to lift.
In the week that Silicon Valley Bank collapsed, sending ripples across global stock markets, some of the world’s largest sovereign wealth funds, pension funds and insurers came together to determine what today’s dizzying array of challenges and disruptions really means for the asset class.
Geopolitics, interest rates, valuation uncertainty, availability of debt, capital flows, the cost of net zero and retrofitting, the future of offices and – perhaps the biggest challenge of all – climate change were among a myriad of issues keeping investors ‘awake at night’.
The RE-Invest investor summit, which until the outbreak of COVID-19 in 2020, had been held every year since 2012 at the MIPIM trade fair in France. This year’s gathering was the second time that major investors could meet for a series of roundtable discussions since MIPIM returned to Cannes last year. But investors seemed to have more to talk about than ever.
Two of the issues that dominated discussions were, unsurprisingly, rising interest rates and valuation uncertainty, which is causing transactions to dry up.
Investors said it was increasingly hard to underwrite new investments and where there was appetite to deploy capital owners of assets did not want to sell.
Most agreed that the best potential opportunities would be come from providing debt rather than being a borrower, but not all investors are able to invest in debt as part of their real estate allocations.
Higher interest rates and bond yields also raised questions over the relative attractiveness of real estate and what will happen to capital flows into the asset class.
Ongoing geopolitical uncertainty is also making it hard for investors to plan global investment strategies.
There was a recognition that the true cost of retrofitting and future-proofing existing assets had not been factored in, and that this had implications for market pricing, stranded assets and total returns in the future.
Most investors agreed they were ‘sitting tight’ and focusing on their existing investments for the foreseeable future, but there was also a recognition that major investors capital to deploy could not do this indefinitely.
Giving a welcoming address on Tuesday morning, Isabelle Scemema, CEO of AXA IM Alts, said that, despite the uncertainty, it was not the time for investors “to sit on their hands” and do nothing. For investors with cash, there will be many opportunities – both in debt and equity – in the coming months, she said.
On a particularly windy morning by the Mediterranean Sea, investors were reminded that the most daunting challenge facing the real estate industry today and over the long term was climate change.
As Jeremy Rifkin, professor and author and keynote speaker for the event, said the global real estate market is worth $362trn but is responsible for 40% of the world’s carbon emissions. For this reason it stands front and centre in the fight against – and adaption to – climate change.
But with challenge comes opportunity, he said. And this is the biggest challenge by far.
Investors represented at the RE-Invest summit:
- Abu Dhabi Investment Authorities
- Abu Dhabi Investment Council (ADIC)
- Alberta Investment Management Corporation (AIMCo)
- Alecta Tjänstepension Ömsesidigt
- ATP Real Estate
- Bayerische Versorgungskammer
- CPP Investments
- Danica Real Estate
- GIC Private Limited
- Ilmarinen Mutual Pension Insurance Company
- Investment Corporation of Dubai
- Ivanhoé Cambridge
- Korea Investment Corporation
- Lægernes Pension
- Oman Investment Authority
- Pension for Academics
- PBU The Pension Fund of Early Childhood and Youth Educators in Denmark
- PSP Investments
- Qatar Investment Authority
- Temasek International (Europe) Limited
- Texas Retirement Investment Company of Texas
- Varma Mutual Pension Insurance Company
- Zurich Insurance Company Ltd.
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