Be honest, did you laugh when you read this headline? Or did you agree wholeheartedly?

Be honest, did you laugh when you read this headline? Or did you agree wholeheartedly?

If you belong to the second group, there's a good chance you belong to the real estate advisory community whose job it is to give a positive spin on the assets they sell. Or a younger generation of real estate professionals hankering for some good news after several tough years of downturn. If you belong to the former, you’re probably a veteran who thinks these are the four most dangerous words in the industry.

But before we try to assess where the real estate barometer is after three days of cruising in and out of the beach tents on the Boulevard de la Croisettes, let’s look first at the facts that have come out of this 26th edition of Mipim. If the weather is any indicator, the signs are certainly auspicious. This roving reporter spotted many coloured faces returning to the Palais des Festivals from lunchtime festivities en plein air.

The Russians may have been conspicuous by their absence, but the sun-drenched waterholes like Caffé Roma were already bursting with businessmen early on in the afternoon. And while the Russians have gone, a new group - the Japanese - have arrived. Indeed, a titbit of news for those who didn’t attend Mipim this year, from 20 to 21 May the fair organisers are holding their first event for the Japanese real estate community in the Prince Park Tower Hotel in Tokyo.

Default to real estate
Other headlines to come out of Mipim this week spell good news for the industry. With bond yields at historic lows in most countries, ‘it’s default to real estate’ to quote Jan-Willem Bastijn, head of capital markets EMEA at Cushman & Wakefield. 'This is the year of überliquidity'.

Indeed, European investment volumes are set to grow 5-10% in 2015, according to estimates from adviser Savills. The firm’s head of European investment Marcus Lemli is predicting that 2015 will be another strong year after the blockbuster final 2014 quarter. ‘The quantitative easing programme announced by the ECB, the expected devaluation of the euro against other currencies and low interest rates will all help to continue to make Europe an attractive place for real estate investment.’

Opportunity also knocks for CEE property investment, Colliers International claims. The firm expects the region will absorb even greater volumes of capital this year as international investors travel further afield to deploy increased property allocations. 'Institutional, private equity and sovereign wealth funds are growing and increasing allocations to property,’ Damian Harrington, regional director of research, said. ‘The weight of this capital, alongside increasing debt availability and a new real estate development phase are helping extend the current investment cycle.’

American capital continues to be the most important source of global investment in Europe, but the old continent is also poised to benefit the most from increased Asian investment, CBRE’s Jonathan Hull, head of EMEA Capital Markets, CBRE, noted. 'Asian investors are hugely attracted to the European market and particularly its gateway cities. The trends we saw in 2014 represent an expected progression in their investment strategies – which has seen an expansion of their footprint into new cities and sectors as they become more confident in the market. We expect this trend to continue in Europe this year, as we have already seen in Holland with First Sponsor Group’s recent acquisition of the Zuiderhof 1 office building.'

Markets are more sophisticated
The 'überliquidity' in the market and the wall of global capital bearing down on Europe inevitably evokes memories of the boom years in the previous cycle. But the fundamentals are much sounder than during 2006-2007, Martin Samworth, CBRE's CEO of EMEA told PropertyEU. ‘It’s not 2007. The market feels very different. If you look at the capital stack, we’re seeing a much higher proportion of equity going into acquisitions and more balanced investment strategies generally.'

There are other differences with the boom years, he added. 'In the coming year, there’s a strong likelihood that there will be an increase in occupier activity and we’re seeing little oversupply in many CBD locations. We’re at a different point in the cycle. In 2007, I was already beginning to feel uncomfortable before the downturn hit. If I look back, I think I was already starting to feel uncomfortable from June or September 2006. Nobody knew then what would tip it over the edge, but it was already clear that the debt-equity ratios weren’t sustainable. We’re now in a much more balanced environment.’

The markets are more sophisticated this time round, agreed Cushman & Wakefield's Bastijn. 'In 2007, the market was fuelled by unlimited optimism and somebody else's money - i.e. debt. There's a lot of money moving around Europe but there's also more awareness of what could go wrong.'

The diversity of global capital – which is also increasingly heading into Europe’s listed sector – combined with the virtual absence of oversupply across most sectors – are conspiring to create a new and different cycle, most industry watchers agree. ‘But every cycle is different,’ noted Mat Oakley, Savills’ head of commercial property research. ‘The question is what will trip us up this time.’

Unknown unknowns
Another veteran put it this way: ‘It’s a cliché, but it’s not the known knowns that will trip us up, or the known unknowns, but the unknown unknowns.’

One known known is that average core returns for real estate are at historic lows. ‘When I first started out, I learned that real estate should generate returns of 7-8%,’ Pieter de Haas, Cornerstone’s European head of business development, told PropertyEU. ‘But that’s just not possible these days. We’re looking now at returns of no more than 5%. Maybe that’s the new normal that we just have to get used to.’

While dealmakers are still trying to figure out where returns should be, the overriding sentiment at this year’s Mipim was clearly one of optimism with big portfolio deals returning to the market and opportunities for consolidation a topic of most cocktail receptions.

Some advisers are hoping that rental growth will keep the party going for another two years at least. ‘Leasing markets are still at an early stage of recovery,’ Savills’ Matt Oakley pointed out during the company’s traditional journalists’ brunch on Thursday. Recovery could even create conditions for ‘a perfect world’, another source noted. But beware of euphoria, he added: any improvement in leasing conditions will be slow in a low-growth environment and by the time ‘a perfect world’ emerges – if indeed it ever does - new developments will start to kick in and change the equilibrium yet again.

With yields compressing in most markets, deployment of capital is already becoming more of an issue than raising it and ‘some numbers are making no sense at all,’ one veteran said. The good news is that many dealmakers are thinking more about their exit strategies than ever before, one industry watcher said.

'There are no crazy over-the-top bacchanal celebrations going on like we witnessed in other cycles,' noted Ric Lewis, CEO of Tristan Capital Partners. 'That is a pleasant surprise. But,’ he added, ‘I would bet everything I have on stupidity coming back to the market. It's not a question of if, it's when. It’s coming. It's not now but there’s no question it's coming.’

Judi Seebus
Editor in chief