Editor's Choice: Out of the bubble

Some would say the bathers on the beach at Mipim this year were crazy to entertain the notion of diving into the cold water, even if the sunshine was glorious and the temperatures relatively high for the time of year.

But as a keen swimmer myself I could only feel envy on Thursday morning as I watched a wetsuit-clad figure glide effortlessly through the water in front of the rooftop terrace where PropertyEU’s sister publication PropertyNL held a breakfast meeting with Ragnar Lifthrasir, founder of the International Blockchain Real Estate Association.

The wonderful weather this year at Mipim and the contrast with last year’s meteorological disappointment was of course one of the first topics of conversation with the many old and new contacts I met up with this week. It is tempting to seek a metaphor in the weather to gauge the mood of the international real estate community and many of the brokers and investors that I spoke to were upbeat about the sound fundamentals and the prospect of low interest rates for longer, to paraphrase one of the key messages from CBRE’s annual Investment Intentions briefing.

No examples of unrestrained extravagance
But try as I could I found no examples this year of unrestrained exuberance on the Boulevard de la Croisettes. Sure, flash sports cars were again on display in the carpark in front of the Hotel Majestic and I saw a helicopter lift off more than once from its pad by the harbour behind the Palais des Festivals. But there was nothing extraordinary about these vistas – they are part and parcel of the experience of the seasoned Mipim-goer.

In an attempt to find an example of unashamed extravagance I walked into the pavilion of Dubai-based developer Nakheel. To be fair, the visualisations and models of the new hotels and malls set to arise on Palm Island are both spectacular and somewhat unreal. But the experience felt as zen as a dip into a yoga room thanks to the transparent walls and sounds of running water. And I know from my recent stopovers on my way home to Australia that builders are busy filling the trunk and branches of the palms and that fabulous villas are actually arising on some of the islands that form part of the artificial archipelago of the world.

Twelve years after my first encounter at Mipim with the extraordinary vision for the deserts in the Middle East and eight-and-a-half years after the outbreak of the global financial crisis I am forced to conclude - with a hint of nostalgia as a journalist but personally with no regrets - that the froth has definitely gone. From my vantage point, the real estate community appears to be getting on with what it’s good at – planning, developing, investing and financing projects where we want to live, work and recreate both in the Emirates and closer to home.

No major ripples from the Dutch elections
Wenzel Hoberg, CEO of Triuva, put it this way: ‘The weather is kind this year, we’re doing good business. The atmosphere is relaxed but we’re also more humble. I don’t see any exuberance.’

Even the outcome of the Dutch election on Wednesday failed to produce any major ripples. The populist party of Geert Wilders may have emerged as the second largest party in the country but the ruling Liberal VVD party is still the biggest and has ruled out forming a coalition with Wilders’ PVV. The challenge ahead for VVD will be to form a stable government with the other winners of the elections and a coalition of at least four parties will in any case be necessary.

While the sense of relief about the outcome of the Dutch elections was palpable at Mipim, there are still concerns about France and Germany and the prospect of an unknown unknown appearing on the horizon. But overall, the sentiment was positive. To quote Hoberg again, ‘We’re making money, we’re reasonably happy.’

The industry is maturing
During my first meeting at this year's Mipim with Isabelle Scemama, CEO of AXA IMRA, it struck me that the industry is truly maturing. Not only is a woman at the top of one of the biggest real estate companies in Europe, AXA is becoming a major force in all four quadrants of the sector - public and private equity and public and private debt.

Central and Eastern Europe is also firmly on the radar of international investors, we learned at a panel session co-hosted by PropertyEU and our CEE partner Poland Today. A sign of the maturity of the region is that the Warsaw Spire, a project developed by Ghelamco in Warsaw, was one of the winners of the Mipim Awards which were announced on Thursday evening at Mipim. This is the first time a Polish office project has won a Mipim award.

Another sign of how far the world has changed since the heady days of the boom years in 2005-2007 is that there are very few sources of international capital in Europe that qualify anymore as exotic. As Matt Richards, head of capital markets EMEA at JLL, noted, many have become long-term investors and they’re here to stay.

Sustainability is here to stay too, we heard during a panel session hosted by RICS in conjunction with PropertyEU and featuring an excellent range of experts from the European Commission and the European Bank of Reconstruction and Develoment (EBRD). The investment case for sustainable real estate is no longer a question, it is a fact of life and commercial players like Log4Real are now keen to take the regulatory framework that the European Commission is working on to the next level, even if that means making it compulsory rather than voluntary.

The best of the best
To be sure, there’s always the danger of a new kid on the block paying far too much in the late stage of the cycle that Europe currently finds itself in. According to one source I spoke to, the double-digit figure that one Asian investor is believed to be entertaining for Blackstone's logistics platform Logicor is at least a billion euros above fair value. But, as Jonny Hull, CBRE’s head of capital markets, pointed out, the best of the best is only available at the top of the market so some spectacular deals may well be ahead. In any case, following the peak in 2015 CBRE is now forecasting 2017 will be bigger in terms of total investment volume than 2016.

While the risk of a bubble certainly lurks in a late cycle, most of the investors I spoke to from both the big and smaller investment managers in the industry appear to be doing their best to keep their feet on the ground and are giving priority to current return and duration of income in the present environment. Indeed, many of the investors I spoke to were very focused on how to create added value now that yield compression appears to have run its course in so many markets.

I can't say the same for myself though! With the PropertyEU team out in force in Cannes this year thanks to our new London-based editors Mike Phillips from EuroProperty, Robin Marriott from CapitalWatch and Jane Roberts from FinanceWatch, Mipim 2017 felt very much like a bubble for me and I am still floating on all the warm words of congratulations and support we have received for our new team and the plans we have for taking PropertyEU to the next level.

One of the priorities of the expanded editorial team will be to get our heads around the potential implications of the rollout of Blockchain in the real estate world that Ragnar Lifthrasir discussed with us during our breakfast on a rooftop terrace in Cannes. Now that we are out of the Mipim bubble, we will certainly do our best to get a grip on this and other challenges that lie ahead for the industry.

Judi Seebus
Editor-in-Chief PropertyEU

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