ULI conference divided on scenarios for global economy

European property leaders who attended the annual ULI Europe conference held in Paris earlier this week appeared to be equally divided about their outlook on the global economy. In answer to an impromptu poll, roughly 50% of the attendees indicated they were optimistic that the current economic slowdown would not worsen further. The other half were more sombre.

The poll was held during the first keynote speech at the ULI's annual conference which was presented by Evan Davis, BBC economics editor under the title 'The Global Economy: Pausing for Breath or Teetering on the Edge?'

While stressing that it was difficult to predict which way the economy would go, Davis said he saw three main scenarios, each of which has a 33% chance of being realised. The first 'rebalancing' scenario he described as the least dramatic of the three: 'Under this scenario we will see a correction of some of the excesses of the last few years. The slowdown will be short and light as the real economy recovers.'

The second 'inflation' scenario would be somewhat more complicated, he said. 'The problem of inflation is already embedded in the economy, we will have to have a slowdown to get it down. The jury's out on whether inflation is a serious problem, it's probably not but we can’t be sure. And if inflation does increase, we will see a deeper crisis.'

Davis described the 'recession' scenario as the most serious of the three, but pointed out that the Federal Reserve Bank in the US had been moving aggressively to lower interest rates in a bid to avoid stagnation or a further slowdown. Pointing to the current banking crisis, he said it was a 'good omen' that US banks are showing their problems. But, he added, 'up to now the economy has been self-fuelling on the upside. Now the world has to find another direction.'

Menno Maas, CEO of ING Real Estate Development, belongs to the group of relatively optimistic real estate leaders in Europe. 'The fundamentals are still good,' he said during an interview at the conference with PropertyEU TV. 'We still have low employment and economic growth. There are no big pipelines in Europe and although yields are stabilising, there is still huge demand from occupiers which will lead to further rent increases. Of course, there are differences per country, but I think the market will stabilize and return to normal levels.'

Maas was one of the participants of a panel discussion entitled ‘Three Wise Men: Tales from the Past and Lessons for 2008’. 'I belong to the older generation who saw yield compression in the early 1990s and again in 1997. As head of Amvest, we had 40% vacancy rates during this period. For the past 10 years, real estate has continued to go up and up. But yield decompression and vacancies could happen again.' He added, however, that he remained optimistic overall: 'I don’t expect we will return to those dark days for the next one and a half years.'