Annual Conference Vienna 2016: presentation summaries

Philip Coggan, Buttonwood Columnist and Capital Markets Editor, The Economist described the global economic outlook as a long term growth problem. We are currently in a demographic sour spot, with many baby boomers retiring and not enough children to replace them in the workforce.

Philip cited two ways to fix the economy: have more children (immigration is one way to solve this); and increase productivity by working longer and more efficiently. People will need to work into their 70s and adjust their careers accordingly, as working rather than not working is good for the economy.

He highlighted two European case studies to provide hope: both Ireland and Spain turned around their economies.

Europe will continue to experience a future of low growth low inflation and low interest rates, but warned that the real risk is politics.

Continuing on the theme of the challenges of a low yield interest rate environment, Eloy Lindeijer, Chief Investment Management, PGGM presented on their asset allocation mix, sustainability’s role and their long term investment approach.

In a poll, the majority of the audience believed interest rates would see a return to 4% in the EU between 5-10 years (56%), while a quarter believed it would take more than 10 years (25%). However, PGGM predicts that interest rates will only climb to 3.5% in the next 15 years, which has a big impact on the future of pension funds.

They also believe climate change is a high probability and high impact risk – climate change is the single most important risk facing us today. When looking at long-term sustainable wealth, it’s clear that Environmental, Social and Governance (ESG) all have big impacts on investments. He also believes responsible investing will become increasingly mainstream.

Robin Goodchild, International Director Global Research & Strategy, LaSalle Investment Management, shared his views on the trajectory for real estate over the next five years by exploring known knowns vs. known unknowns vs. unknown unknowns.

According to Robin, it is known that markets are cyclical, that economics have an effect on real estate performance, and that capital markets / debt & equity flows are important. It is also known that the development pipeline needs to be controlled, and that higher risk strategies are more successful.

What is known to be unknown is how economies will perform, what will happen to interest rates, and what surprises will come from development pipelines. Known unknowns also include tax and regulatory changes, geo-political threats, and where we are in the cycle.

Robin highlighted that there are different cycles to look at, including real estate capital markets and occupier markets. He observed that big cycles occur every second economic downturn, and so the next downturn should be mild for real estate as debt markets are currently under control. He expects the next big downturn to occur somewhere in the middle of the next decade.

When thinking about the unknown unknowns, he concluded with his views on what investors should be concentrating on in 2016-2017, including harvesting gains and selling non-strategic assets, reducing leverage, anticipating liquidity needs if credit tightens or equity freezes up and striking a balance between long-term defensive and short-term offensive strategies.

Ben Hammersley, Author, Futurist & Technologist, Editor at Large of WIRED Magazine delivered a provocative keynote speech on the impact of technology on real estate. Not only will technology impact jobs, but it will also result in people re-defining their work, re-defining what the best environment is to perform that work, and ultimately re-shaping working spaces, living spaces, and infrastructure.

One illustrative example Ben cited was drone delivery. Not only will drone delivery replace delivery workers, but it will also increase the need for end users to have direct balcony access to their apartments. He asserts that people’s desire to use new technologies – battery charging, solar, drones -- is greater than their desire to stay in their current homes. Other building types such as shopping malls and single-use office space may be obsolete in the future.

Technology will shape this future, but the real estate industry can also influence this future. Ben warned the industry to not only pay attention to the technologies, but more importantly to the human reactions to those technologies.

Joey Kaempfer, Chairman and Founder, McArthurGlen provided his refreshing views and insights in a revealing interview with Anthony Hilton, Chief Economics and Business Commentator for the Evening Standard and Independent. Throughout his career Joey has constantly looked forward, recovering from setbacks quickly. 

According to Joey, you make your own luck to a large degree, by working hard and surrounding yourself with exceptionally smart and hard working people.

When asked about US politics, Joey was unafraid to share his political views, calling himself a ‘Limousine Liberal’. 

He said he used to think McArthurGlen was in the retail business, but now considers them to be in the entertainment business. ‘If you entertain them, if you feed them well, if the places you build are beautiful, they will come. People need leisure.’

Joey reinforced the need for beautiful architecture, saying that bad architects and good architects cost the same thing. Retailers are also proud to display their goods in beautiful settings.

When asked about his retirement plans, he responded ‘I’ll never quit. Why stop doing something that you love?’ which put our speakers Philipp Coggan and Amlan Roy at ease.

Dr. Michael Linhart, Secretary General for Foreign Affairs for Austria, touched on burning issues for Austria, specifically the migration crisis. He highlighted that Austria has received the second highest number of refugees per capita of an EU country, after Sweden.

We are living in challenging times: we are still dealing with the economic crisis, the conflict with Russia, the deteriorating situation in Ukraine, refugees, and European economies struggling to remain internationally competitive. Michael emphasized that the biggest challenge ahead will be to integrate refugees into the labour market and society. Free movement of people is a fundamental right in Europe, but necessary changes are needed.

Amlan Roy, Managing Director and Head, Global Demographics and Pensions Research, Credit Suisse challenged the audience with his controversial statements and quick responses on the continually changing landscape of demographics.

Amlan addressed the three most popular misconceptions on demographics by stating that demographics is not long term, not age-related and not predictable. Demographics is about people as consumers and workers, and has a direct impact on real estate.

Most people are surprised to hear that the fastest growing age group in the world is 80+, which presents a lot of challenges for the next generation. His policy prescriptions for the mitigation of this demographics time-bomb by aging advanced countries is:

• Abolition of mandatory retirement ages combined with flexible enabled retirement
• Increased female labour participation rates with use of technology to facilitate women to better balance work and family
• Outsourcing and off-shoring
• Selective immigration policies
• Youth employment