A lack of ‘true, collective action’ is increasing the pressures on the European real estate industry, with property being ‘dominated by short termism’ according to ULI Europe chief executive Lisette van Doorn.
Speaking at last week's annual ULI European Conference, held in Milan, van Doorn said: ‘The tough market conditions of recent times require an industry response. We’ve already been through a lot this decade, from the pandemic to war in Ukraine, accelerating social and environmental challenges like climate change and hybrid working. Exceptionally, real estate has been affected by every challenge that arrived.’
She suggested that the industry had failed to respond satisfactorily until now, with players ‘looking at these challenges in isolation, even though many issues are connected’.
Particularly relating to matters of climate change and environmental issues, she asked delegates to ‘stop relying entirely on certifications’, try to ‘move beyond the spreadsheet’ and ‘focus on transformative action’.
Geopolitical shifts
Keynote speaker José Manuel Durao Barroso, former prime minister of Portugal and ex-president of the European Commission, continued the note of warning with a forensic analysis of why geopolitics has become such a central topic for business and governments today.
‘This is because the international geopolitical situation is very polarised, volatile and dangerous,’ he explained. ‘These times are going to continue, so we will have to factor them in for our societies, policies and economies going forward.’
He described Russia’s invasion of Ukraine on 24 February 2022 as ‘an historic moment’ stating that ‘the world will never be the same again’. He asked delegates if they could have even imagined a time when ‘Sweden and Finland would have become members of NATO, Germany would support a war and send weapons - even with the backing of the Green Party - while the rest of Europe provided weapons and training.’
He added: ‘Only when there is a crisis are European leaders prepared to make a decision. Democracies are more reactive than proactive – they tend to procrastinate on difficult decisions.’
Despite the preference for procrastination, he observed that changes were now happening on the European stage. ‘The pandemic taught important lessons about supply chains,’ he noted. ‘Today, supply chains have become one of the top issues in geopolitical thinking.’
From a position of being overly dependent on Russia for gas, the Continent adapted fairly rapidly, even if at a ‘high cost’. ‘Increasing resilience is taking priority over increased efficiency,’ he added.
Barroso summarised: ‘Europeans always think their problems are global problems. Weill it is a global problem. China was never as close to Russia as it is now, with these powers mobilising the global south against global north or west.’
When asked by the audience about his views on Putin’s threat, Barroso said that he had ‘met Putin face to face over 25 times’. He described the Russian leader’s driving motivation as a ‘sincere resentment born out of collapse of the Soviet Union’.
Barroso added: ‘He once asked me – “why do you support Ukraine? It is a product of the CIA and the European Commission.” He holds a deep resentment against the West so we need to be prepared for all eventualities.’
When quizzed on his view on conflict in the Middle East finding a resolution, he said that he was doubtful it ever would. ‘It is politically bleak, but there are some problems that don’t have a solution,’ he said.
‘There was mistrust in the area ten, fifteen years ago; there will be mistrust in five years and in another ten. It is a zero-sum game – both sides wish the other side didn’t exist.’
Inflation outlook
Other sessions tackled the economics of real estate, with HSBC global economist Janet Henry addressing the big questions around interest rates. ‘Inflation has come down a long way but there are still shocks ahead,’ she said.
‘Central banks face a dilemma – they know there are risks on both sides, they want to cut rates, but inflation targets remain an issue. If they cut too soon, inflation could relaunch. But there is a risk that cutting too late could result in a harder landing, and in inflation undershooting their mandate.’
She observed that ‘Germany’s hard won competitive edge has been eroded away’, adding that ‘for strong productivity growth, you need investment spending’. However, the outlook wasn’t all bad.
‘We’ve had a fairly optimistic start to the year – despite everything that is underway in the world, globally more banks have started to cut rates, and there are green shoots in the global economy.’
She added: ‘The Fed is still watching and waiting to act, and monetary easing cycles could prove as unusual as the tightening cycles they follow.’ Like Barroso, she suggested that ‘geopolitical conflicts and tensions’ were contributing to ‘precarious fiscal positions’.
AEW Europe CEO Rob Wilkinson countered industry views on macroeconomics, suggesting that ‘interest rates aren’t that high’, generating a note of positivity.
He explained: ‘Swap rates are under 3%, and we have had seven successive quarters of value declines, the most since the Global Financial Crisis - up to 30% on a cap rate basis.’ He added: ‘The occupational market is pretty robust when it comes down to it. In the office market, which is somewhat bifurcated, the rental growth story in great workplaces is quite strong in many cities across Europe.
'Real estate overall is in a really interesting space right now. On the downside, there is some 2 trillion dollars of debt refinancing coming up, that will perhaps create something of a down pressure on markets.’
Hosts speak up
Held this year in the city of Milan, the main conference was preceded by a series of tours for delegates to review the city’s latest projects and upcoming opportunities.
In visits to schemes including Coima’s Olympic Village for the upcoming Winter Olympics of 2026, industry leaders learned about plans to turn the athlete accommodation into student housing post-games as part of the city’s legacy commitment.
Other tours explored data centre developments and MIND, Milano Innovation District, a growing ecosystem for innovative businesses including bioscience and the creative industries.
Speaking on the Wednesday afternoon, mayor of Milan Giuseppe Sala said that the city was proud to host the ULI conference for the first time and that the city had plenty to offer the real estate industry.
‘Some 50% of real estate deals in the country happen here,’ he noted, explaining that the spotlight had turned on Milan during and after Expo 2015, and was still intensifying. ‘Tourism numbers have doubled – there’s no real low season anymore,’ he added, describing the city as the ‘backbone of the national economy’.
Sala said: ‘Milan has become a global city. We have eight universities, with 220,000 students, out of 1.14 million residents, which is similar to Boston and Paris. Some 10% of those students come from abroad, helping our reputation grow. In design, bioscience and pharmaceuticals, Milan is at the centre of the Italian economy.’
Touching on Milan’s housing problems, he said: ‘Housing is a fundamental tenet of everyone’s life, for a good standard of living for both the individual and their family. I am trying to ensure an equitable housing market.
‘In Italy, actual land use decisions are primarily made at a local level by municipalities. We have a strong collaboration with the real estate industry, and I see this as the best way of making the housing market work.’
Image Karla Gowlett/ULI
