INREV Young Professionals Conference 2023: Highlights

The second presentation was on whether real estate is an inflation hedge. Vanessa Muscarà, Europa highlighted that the answer to this question is not straightforward and depends on various factors. Vanessa highlighted that the anticipation of inflation and short-term market conditions play crucial roles in determining whether real estate serves as an effective hedge against inflation. 

One notable aspect of the current cycle discussed was the change in the occupational market. This factor can influence the performance of real estate as an inflation hedge. While timing is difficult to control from the demand side of the equation, a better view can be obtained from the supply side. 

The session concluded that the effectiveness of real estate as an inflation hedge depends on several factors. These include the structure of leases, short-term market conditions, and other long-term and short-term challenges that may arise. It was also noted that real estate capital values and rents react selectively to inflation, suggesting that not all real estate investments may provide a reliable hedge against inflation. 

Interested to learn more? A short paper on this topic will be available in late June. 

Audience polls:

Are real estate hedging qualities better over 5-years, 10-years, 20-years or longer term?

• 5-years - 10%
• 10-years - 42%
• 20-years - 14%
• Long term - 34%

Which sectors do you foresee being relatively better inflation hedges going forward?

• Office - 8%
• Retail - 8%
• Logistics - 35%
• Life sciences - 16% 
• Student accommodation - 33%

Peter Pereira Gray, Emeritus Partner at  Wellcome Trust, was interviewed by Laura Barstow on stage.  

Peter started the interview by expressing his gratitude for the supportive bosses he had throughout his career, from his early days as a sandwich boy to his senior roles in the industry.  

Peter Pereira Gray provided valuable insights into understanding the market, the importance of networking and broadening knowledge, effective communication, work-life balance, and his evolving views on the fund model as highlighted below:  

1. Understanding the market: Peter advised delegates to analyse the market through the lenses of logic, fear, emotions, and consensus. These factors play a significant role in driving market dynamics. It is crucial to comprehend both the current state of the market and one's position within it. 

2. Importance of networking:  The significance of building relationships and listening to others was emphasised. He highlighted the value of attending events like INREV, which provided him with numerous benefits. He also cautioned against blindly believing everything read on smartphones. 

3. Broadening knowledge: To advance his career, Peter emphasised the importance of understanding decisions made outside of the real estate industry. Gaining knowledge in related areas and participating in groups like INREV can contribute to professional growth. 

4. Communication and clarity: Peter stressed the key role of communication in avoiding mistakes. He emphasised the need to choose the right words and order them correctly. Additionally, he mentioned the importance of being clear-sighted and asking probing questions. Even with a good portfolio and capable manager, investment decisions can still go awry. 

5. Recommended books: Peter shared book recommendations that helped him develop knowledge about building relationships and understanding the industry. His must read books are:  

• Please understand me, by David Keirsey 
• Winning from within, by Erica Ariel Fox 
• The Secret Life of Real Estate: how it moves and why, by Phillip J. Anderson 
• The Secret Wealth Advantage: How you can profit from the economy’s hidden cycle, by Akhil Patel 

6. Work-life balance: While acknowledging the importance of hard work, Peter recognised the impact it had on his personal life. He encouraged individuals to understand themselves and determine their own aspirations. He acknowledged the challenge of maintaining work-life balance, particularly for women, but advised everyone to discover their own path. 

7. Changing views on fund model: Peter mentioned that he used to be critical of the fund model but has witnessed changes in recent years. While acknowledging progress, he believes there is still room for improvement. 

8. Outlook for the future: When asked about the future, Pereira Gray predicted that things would remain stable for the next couple of years and did not anticipate a crash before the 2024 US elections. 

The session titled "Navigating the transition: is there a realistic road map towards net zero?" addressed the challenges and strategies for achieving a net-zero carbon future in the real estate industry.  

Brett Ormrod, LaSalle Investment Management emphasised that it is crucial to address the carbon footprint of the sector. He recommended converting existing brown assets into green assets instead of focusing solely on new developments. 

Olivia Muir, UBS Asset Management outlined the steps required to achieve Net Zero Carbon (NZC) by 2050, which included minimising energy demands, increasing energy efficiency, sourcing green energy, and utilising offsets. She emphasised that measuring and calculating carbon-related data is the first step toward managing the transition to a NZC future, highlighting the importance of data management.  

Justin Travlos, AXA IM Real Assets acknowledged that there is no one-size-fits-all approach to navigating the transition towards net zero, as the pathway will vary for each organisation. He also noted that defining the concept of net zero itself poses a challenge. However, he highlighted the significance of the Carbon Risk Real Estate  Monitor (CRREM) as a relatively young but already valuable tool for enabling the 1.5-degree target.

During the panel discussion, it was stressed that the ultimate goal is to protect the value of assets in the face of a changing climate. While offsets play a significant role in achieving NZC, they should be considered as a last resort solution. The importance of well-managed data for effective decision-making was emphasised. It was also added that transparency and evidence are crucial for capital allocations in the industry. 

Regarding vehicle strategies, it was noted that value-add and opportunistic strategies hold great potential. However, different vehicle types and asset classes may require different approaches to achieve net zero. 

In their closing remarks, the speakers offered advice for navigating the transition. Olivia emphasised the importance of education and ensuring that everyone is on board. Justin encouraged exploration and learning. Brett highlighted that although net zero is not a specific field, understanding it is essential for leadership roles in the industry. 

Audience polls:

Is it clear to you how the effects of climate change impact your day to day role?

• Yes - 64%
• Not sure - 27% 
• No - 9%

Are you aware of what your company's net zero strategy is?

• Yes, I know all the ins and outs - 29%
• Yes, however I only know the overall strategy  - 56%
• No, I am not really sure what it includes - 11%
• No, what does a net zero strategy actually mean? - 4%

Andrew Allen, Savills Investment Management discussed the distinction between affordable housing and social housing. He emphasised the urgent need to address the issue of affordable housing and expressed concern over the lack of attention it receives from the industry.

Andrew highlighted that the residential sector encompasses various rental segments, with affordable and public housing being just one of them. He emphasised the importance of agreeing on a definition for affordable housing, noting that there are two definitions in circulation: one based on public policy and another based on the ratio of rent to disposable income. 

Regarding rent regulations, Andrew posed the question of whether they are good or bad for affordable housing. He argued that while rent regulations may not necessarily be bad for this sector, they should not be feared but rather worked with to achieve the desired outcomes. 

Andrew pointed out that affordable housing presents an opportunity for impact investing, as public sector pension funds are interested in making a positive social impact.  

In conclusion, Andrew urged for a serious approach to addressing the affordable housing crisis before it escalates further. He reiterated the importance of ensuring that affordable housing reaches those who genuinely need it. 

Audience poll:

What are the main barriers to investing in affordable housing?

• Regulation - 24%
• Financing - 5%
• Management intensity - 6%
• Reputational risk - 6%
• Return levels - 50%
• Scalability - 5%
• Something else - 4%

In the last insightful session of the day, the focus was on adapting to our poly-crisis world, where multiple crises occur simultaneously.  Thimon de Jong compared this situation to being stuck on a sandbar in the middle of the sea, emphasising the unique challenges it presents. People in a poly-crisis experience a mix of positive and negative emotions, often feeling helpless and waiting for external solutions rather than actively seeking them. 

It was highlighted that Generation Z is currently the most stressed generation, while individuals between the ages of 40 and 55 tend to handle the current poly-crisis better. The younger generation associates their future with fear, anxiety, and negativity, marking a new phenomenon. Previous generations did not have this fear the future when they were young.

A recommendation was made to find a ‘reverse mentor’, someone half your age who can provide insights into the next generation's perspective and experiences. It was also noted that the younger generation is discussing mental health openly, similar to physical health, which is crucial for the industry to prioritise. A good mental state is necessary for envisioning and building the future. Developing a mental health strategy within companies was recommended to ensure that employees are in a good mental state, enabling readiness for change and innovation.

He highlighted the perceived friction in today's societies, attributing the 2010s to being a decade of awareness, where concepts like diversity, equity, and inclusion (DEI) and climate change gained prominence. The current decade, the 2020s, is seen as the decade of action, requiring the implementation of what was discussed in the previous decade.  

Thimon de Jong found the side hustle culture among Generation Z interesting, with a majority already having or planning to have a ‘side gig’. The future of remote work and the importance of connecting with or without technology was also discussed. The session concluded with the advice to organise smaller meetings, end hybrid meetings and promoting more meaningful interactions.