More than 600 industry professionals from across Europe, representing an estimated $800 billion of combined financial management expertise, gathered in Paris in early February for the 15th ULI Europe Annual Conference to debate and explore how the real estate industry faces up to the economic, political, and business trends shaping the market—and how to seize opportunities.
Pierre Vaquier, CEO of AXA REIM, opened the conference by adapting a Benjamin Franklin quote, saying, “Certainty? In this world nothing is certain but debt and taxes.”
“Real estate, as a physical asset with the ability to provide income and act as a hedge against inflation, becomes an attractive proposition when compared to many other asset classes,” said Vaquier, the conference chair. “The combination of these factors presents the industry with a time in the market cycle where there are numerous opportunities, both in our domestic markets and internationally, for those with the ability and experience to take advantage of them.”
The morning keynote speaker, Ian Shepherdson, chief economist at High Frequency Economics, highlighted the continued short-term uncertainty caused by the backdrop of a potential European debt crisis. In his keynote, titled “The Great Experiment,” Shepherdson set out the different fiscal approaches that the United States and Europe have taken to solve the economic crisis, highlighting how the U.S. approach is paying off, for now. He likened Europe’s bailouts to “a Band-Aid on a bullet wound,” warning that while they provide short-term liquidity, the risk is that they do not address the issue of a lack of competitiveness within the markets.
Pointing delegates toward potential solutions, Shepherdson said he believes that a combination of factors will be required to deliver real rescue. These measures include the restructuring of debt for the most “wrecked” economies—notably Portugal, Ireland, Greece, and Spain; an expanded European Financial Stability Facility (EFSF) to buy government bonds; and fiscal policy reform.
John Forbes of PwC echoed these sentiments during the launch of the annual ULI/PwC Emerging Trends in Real Estate® Europe report. The European property landscape is set to face a number of challenges as a result of tougher regulations, austerity measures, and increasing sovereign debt, he said.
However, he suggested that the market will get a boost from the arrival of a number of investors from the Asia Pacific region and from insurance companies and private equity funds. He added that with capital so risk averse, cities such as London, Munich, and Paris are expected to absorb investment and stand as the primary places where tenant demand will remain robust. Other investor favorites are likely to be Istanbul, Stockholm, Berlin, and Hamburg.
Forbes said the report predicts that buyers will avoid Dublin, Athens, Lisbon, and Budapest, and even within the most favored markets, investment will be drawn mainly to the prime buildings. As a result, values for secondary properties will remain at distressed levels and even start to decline further.
The problems facing city investment markets were starkly laid out by afternoon keynote speaker Ricky Burdett, professor of urban studies and director of London School of Economics Cities, and director of Urban Age. Burdett drew on primary research to illustrate how the recent recession has affected the trajectory of economic and social prosperity of various cities around the world. Through case studies on Turin, Barcelona, and Seoul, Burdett revealed the key features of economic transformation and the key drivers of growth behind the cities’ resilience. (More information is available in the Resilient Cities: Surviving in a New World report from the ULI Urban Investment Network.)
Senior ULI leaders and delegates came together inside and outside the conference, through various council and steering group meetings, the ULI Member Summit, and a leadership dinner and reception featuring keynote addresses by David Higgins, former chief executive of the Olympic Delivery Authority and newly appointed chief executive of Network Rail, and John Bruton, former European Union ambassador to the United States, who presented his vision of Europe and the United States over the next ten years.
The conference gave delegates the opportunity to hear from ULI chief executive Patrick L. Phillips, ULI Europe chairman Alexander Otto, and ULI Europe CEO-elect Joe Montgomery. Montgomery had been director-general of the U.K. government’s Regions and Communities Group.
Also at the conference, participants turned their attention to solving some of the most pressing macro-challenges facing real estate—reinvigorating investment markets, developing new models to finance development, and addressing the drive toward energy efficiency, as well as national and regional issues.
George Nikitiades, Greece’s minister of culture and tourism, explained how the government is implementing an economic and financial program to promote investment opportunities in the tourism sector via public/private partnerships and privatization. Christian Sautter, deputy mayor of Paris, presented a compelling vision of the city’s economic and climate plans for 2020. José Baeta Tomás, director of Sonae Sierra Brasil, reported on the opportunities for investment in Brazil, which dovetailed into Shepherdson’s assertion regarding the growth potential of Latin America as well as Asia.
Alexandra Notay, ULI Europe vice president of strategic programs, led a roundtable on public and private retrofitting models that was open to partners of ULI’s LessEn initiative, now the largest public source of independent peer-reviewed information on energy efficiency policy, case studies, and solutions worldwide. Notay highlighted the strategy of engaging occupiers on the subject of how to use their buildings more efficiently and encouraging designers and managers to retrofit their buildings in energy-efficient ways, plus the work of guiding owners and investors toward identifying assets in their portfolio with the greatest efficiency potential.
Likewise, Terri Wills, London city director of the Clinton Climate Initiative, discussed that organization’s work with the mayor of London. The U.K. capital has seen 42 public buildings reduce their energy use by an average of 28 percent through a building retrofit energy efficiency program. Andrew Baum, professor of land management, Henley Business School, Reading University, chaired a session exploring the data behind energy efficiency retrofits.
A ULI Europe report asking “Have Property Funds Performed?” was unveiled at the conference. Providing insight from research spanning 2003 to 2009, when returns had been both very high and very low, it showed how different investment styles performed during different periods of the market cycle. Supported by AREA Property Partners, the report concluded that real estate funds in general have not delivered the required risk/return characteristics that investors would have expected or are led to believe would result.
The ULI Urban Investment Network ran a workshop in its series on public and private investment in city centers, including presentations from London, Edinburgh, Paris, and Barcelona. The network also unveiled a new website, graphic identity, and yearbook that illustrate its pivotal role as an independent network, which enables public/private partners to bridge investment gaps and overcome city development challenges.