Annual Conference Barcelona 2015: presentation summaries

Jim O’Neill, Visiting Research Fellow, BRUEGEL, shared the sentiment of the crowd, the majority of whom (82%) thought that the next global recession would not take place until after 2017.

In his global economic overview, he echoed that the world is doing better than most people think. Jim believes that China remains the big story. As the Chinese spend more relative to the amount they produce, there will be positive benefits for the rest of the world.

Jim commented that the US is not doing as well as everyone thinks, whereas he thought that Europe is doing well. He emphasised that female participation in the Nordics is excellent, and that Japan has a lot to learn from the Nordics. He also thought that South Korea was the most interesting country in his life time.

Andrew Allen, Director of Property Research, Aberdeen Asset Management presented on the efficiency of using space in real estate. Rather than focus on top-down broad averages, which Andrew believes are not useful in property he focused on thematic investing.

One of these themes is ‘Global Winning Cities’. Rapid urbanisation in Europe’s global cities generates population growth in excess of Emerging Market averages. However, he warns that office, a favourite of investors, has not performed well compared to other sectors.

Another theme focused on understanding space efficiency. New developments in office construction, technology and working practices have resulted in over twice as many workers per sqm compared with 30 years ago. Andrew sees a lot of opportunity in exploiting underutilised urban buildings but cautions against mainstream commercial.

Zooming out to the bigger picture of global future trends, keynote speaker Magnus Lindkvist, Swedish Trendspotter and Futurologist, encouraged the audience with a high energy presentation to think about the future in terms of horizontal and vertical development.

According to Magnus, horizontal developments are things already out there that are expanding. He talked about R&D – Rip off and Duplicate – as the standard way most people grow their businesses. Vertical change is the way forward, when great leaps are made and something new happens. Thinking vertically is about shaping the future, whereas thinking horizontally is about being subject to developments and trends.

Magnus believes that rather than focusing on technology, we should focus on people and how they change and he asked the audience to imagine what vertical developments could occur in non-listed real estate?

Bahram Motamedian, Managing Director of Portfolio Management, USAA Real Estate, started his presentation by asking the audience: is the real estate industry optimising new technologies? 59% of delegates responded ‘Somewhat’, 39% responded ‘Not at all’ and only 2% responded ‘Very much’.

Bahram identified several ways that technology is saving space from cloud storage and computation power, through to the shared economy and robotics.

We now need less space for the same amount of information. We also require less space to do our work, and residential ‘microunits’ – modular housing where multiple uses fold in and out of spaces – mean we need less space to live. He also discussed the impact of autonomous cars on infrastructure, including highways, parking space and even the need for public transportation, and asked what’s going to happen to the existing housing, shopping, parking?

In a lively interview, Johan van der Ende, Advisory and Supervisory Activities, discussed the past, present and future of Jon Gray, Global Head of Real Estate, The Blackstone Group. Jon outlined the steps for success that lead Blackstone Group to become the large player they are today: (1) buy and deal great real estate, and (2) attract and retain a great management team, and keep opening up the lanes to allow them to advance.

Jon’s two key take-aways from the last decade were to be prepared for all weather, you don’t know when the market will change, and don’t wait until the moment when things become fashionable, it’s often too late. He closed with three words of wisdom: (1) keep your culture and team as integrated as possible, (2) always operate with integrity and (3) play hard, but by the rules.

Jeff Jacobson, LaSalle Investment Management opened up the debate with David Sherman, Metropolitan Real Estate, Maarten van der Spek, PGGM and Scott O. Silverberg, NLI International, by asking the audience: are you redesigning your property portfolio for new technology sectors and systems? 44% responded ‘Somewhat’, 29% ‘Yes’, and 27% ‘No’.

David Sherman emphasised that the biggest impacts of technology on real estate were less about technological advances in buildings than about how the technology sector is impacting the built environment. Prime office space used to be in the Central Business District, whereas now technology firms seek mixed-use areas that attract creative talent. Scott Silverberg agreed that the cultural elements of office space users has changed – from office to tech office – and also asked how crowd funding can be used for development?

Martin van der Spek emphasised that location is the most important factor. You can reuse and adapt spaces to changing needs.

Rt Hon Lord (George) Robertson KT GCMG, Former UK Defence Secretary and NATO Secretary General, shared his perspectives on the geopolitical climate, stating that our world is simultaneously safer and more dangerous than in the past.

On one hand, we may be living in the most peaceful era in history. However, the world feels less safe because every conflict is being played out in our living rooms through televisions. He asked, are we capable of dealing with the surprises to come? And offered four insights into how we can better prepare ourselves.

First, he believes that global leadership is essential and that leaders should face populations with facts and not fiction. The second recommendation was to reform the great institutions, such as the UN, IMF and EU, to be more relevant to today’s needs.

He also believes strongly that when powers such as NATO start something, they also need to finish it. He finished with the need for having the right capabilities for today, rather than basing military and other needs on past experiences. We can’t predict, but we can be prepared.

Zooming into our host country, Ismael Clemente, Merlin Properties Socimi, outlined Spain’s economic changes over the last twenty years. Prior to the economic crisis, Spain enjoyed strong economic growth with an average of 3.6% growth in GDP and decreasing unemployment.

What happened next was the ‘Perfect Storm’ that lead to the dramatic consequences of the economic downturn, when economic growth hit the floor and Spain suffered from massive unemployment.

Since then, a new government has reformed public administration, changed the relationship of inflation with pensions and collective bargaining, and made other drastic reforms. These measures have resulted in positive changes in Spain.

Real estate has improved, but there is still a long way to go. And there has been no rental recovery yet. The lessons learned included the separation of house building from commercial real estate, and how to responsibly operate with leverage.

Clemens Schäfer, Managing Director, Deutsche Asset & Wealth Management presented on the impact of currency rates and political risk on real estate. He stated that currency increases the volatility of your investment, and that hedged vs. unhedged returns offered substantially lower volatility.

To hedge or not to hedge? Clemens provided clear general recommendations on hedging, not hedging and partially hedging based on key considerations for foreign investing, such as strong currency view, relative cost of hedging, liquidity of assets, etc.

He also discussed several key risks to consider, which included systemic risk, risk of political stagnation, election risk, and governance risk.

Peter Hobbs, Managing Director Research, MSCI Real Estate, provided first insights into a study on capex drivers of asset specific performance. Full results of the study will be released in summer 2015.

Gabi Stein, Tishman Speyer, moderated a debate between Patrick Kanters, APG Asset Management, Christian Delaire, Generali Real Estate, and Alex Jeffrey, M&G Real Estate on geopolitics. They first asked the audience how likely a UK exit from the EU is in the next 5 years, to which the majority (73%) responded ‘Very unlikely’.

The panel went on to discuss the implications of the upcoming elections in the UK and a potential Brexit. In terms of a Grexit, the panel did not anticipate that the real estate industry would be greatly impacted. They also discussed the effects of interest rates and currencies, and it was felt that a rise in interest rates would not have a direct impact on real estate – in fact it would be a good sign that growth is coming back.

They went on to discuss emerging markets and hot spots, such as Russia, China, Turkey, India and Brazil. The panelists all had different strategies towards these markets.

Patrick Kanters shared his lessons learned, which included: stick to a few ground rules, and look into how you translate technology and demographics into your portfolio.