Key figures in property investment speak to Bob Currie ahead of the MIPIM real estate conference in Cannes.
EMMANUEL LUMINEAU, CHIEF EXECUTIVE OFFICER AND CO-FOUNDER, BRICKVEST
What are the key challenges confronting investors in global real estate markets in the year ahead?
Illiquidity has traditionally been one of the main barriers to entry for real estate investors. For institutional investors, the range of investment products offered by the majority of banks is often limited to low-yield, open-ended funds and full market transparency continues to be an issue.
For individual investors and family offices, yield continues to be impacted negatively by high fee structures and a lack of secondary markets which offer fair pricing. Their smaller size also hampers market screening capabilities.
Raising a full capital stack is expensive and time-consuming for sponsors, and the introduction of more stringent regulation has made it increasingly difficult to exploit market investment opportunities while maintaining a legally correct set-up.
In 2019, we are confident that these problems will be remedied through innovation and digitisation in the real estate investment industry. The proliferation of fairly priced, low-cost secondary markets, efficiency gains in the submission and sourcing of investment opportunities and increased access to real estate deals through reduced minimum tickets, are all trends which we expect to have a large impact in the months to come.
SAM SALLOWAY, INVESTMENT MANAGER, AVIGNON CAPITAL
Where do you identify opportunities for real estate investment managers in European markets?
MIPIM is coming at an interesting time for global real estate markets. Geopolitical risks linked to market volatility from Brexit, national elections in Belgium, Portugal and Greece (and perhaps Italy and Spain), as well as regional elections in Germany, Spain and the Netherlands, are making European property investors cautious. However, real estate remains an attractive investment compared to other asset classes.
Europe’s gateway cities such as Amsterdam, London, Berlin and Lisbon have increasingly young, dynamic populations and represent an exciting opportunity for exploring the office, hotel and mixed-use retail sectors. This ‘work, play, stay’ philosophy represents an exciting proposition. Millennials are changing the way we think about real estate as they look for flexible spaces built with technology in mind, as well as places to visit and experience. This is a rising trend and one we will be looking out for at MIPIM.
By future-proofing assets in these sectors, we can tap into the changing habits of a new generation and take advantage of the economic environment of Europe’s best cities, winning out in the long term.
CATHERINE MCGUINNESS, CHAIR OF THE POLICY AND RESOURCES COMMITTEE OF THE CITY OF LONDON CORPORATION
In the face of Brexit, what steps is the City of London taking to attract real estate investment?
As with all areas of business, Brexit means that the UK will have to up our game in attracting and retaining investment and talent. Just last year, 58% of institutional investors voted London to be the best European city for businesses, almost three times more popular than the next city on the list, Dublin, at 22%. But we cannot afford to be complacent.
We recognise that real estate investors will take the design of buildings, transport infrastructure and the location’s cultural offering into account when making investment decisions.
This is why the City of London Corporation has outlined its most ambitious development proposals to date, looking beyond the immediate Brexit-related challenges to 2036, with aims of future-proofing the next two decades of sustainable, commercial development.
The 1,264,000 square metres of office space currently under construction will be complemented by other commercial, vibrant cultural and retail growth wherever appropriate, adding to the City’s 24/7 evolution.
The City continues to maintain global appeal to a range of funds from around the world, with most recent interest from South Korea. I am confident that the City of London’s development pipeline will sustain its standing as an attractive destination for foreign investment.
MATTHEW WEBSTER, CHIEF FINANCIAL OFFICER, CLOUDSCRAPER EXCHANGE
How will standardisation of communication and transaction processing benefit real estate investors?
The commercial real estate marketplace is entering a period of change. There is a need to create a unified real estate ecosystem that supports efficient and standardised communication and transaction processes, while integrating with existing platforms and systems.
Real estate professionals are exploring ways to apply technology that makes it faster, more accurate and more cost-efficient to conduct real estate transactions. This provides efficient linkage and communication between key parties to a transaction, bringing together stakeholders, advisers, debt and equity capital in a single network.
By centralising information in one place, this reduces the administrative overhead imposed by collating and re-verifying information. Over time, this will enable the industry to reduce the resources allocated to deal administration and back-office processing, enabling firms to reallocate these resources to front-office expertise where it delivers most value.
As a result, real estate organisations operating selling, buying and financing procedures on a centralised exchange can realise a dramatic improvement in their efficiency. We estimate this can reduce the time taken to process a real estate transaction from 17 to 37 weeks, which is common with traditional practices, down to two to 15 weeks.
ZACHARY GAUGE, EUROPEAN REAL-ESTATE ANALYST, UBS GLOBAL ASSET MANAGEMENT
What are your predictions for the UK property sector during 2019?
The UK is set to deliver another above-expectation level of return for 2019, but opinion on the outlook for the market is highly polarised. Some agency-based forecasters predict another exceptionally strong year, while others are more bearish.
Part of the dispersion in opinion stems from the data coming out of the market, which can be interpreted several ways. Investment activity, in terms of GBP volumes, has held up well since the EU referendum. However, bears will point out that the actual number of transactions has been in sharp decline, with the market increasingly dependent upon overseas buyers picking up trophy assets at big prices. This does not provide a fair indication of the weakening depth of the market at the non-prime level.
The health of the occupier market is also debatable. Bulls will highlight the relative strength of central London take-up figures. A more pessimistic view will recognise that around 20% of this demand now comes from serviced office providers, which should not be counted as true net absorption. Without even mentioning the political uncertainty, it is not surprising that forecasts for total returns in 2019 range from 7.2% to minus 2%.
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