Up to 45,000 delegates are due to arrive soon in Munich for the annual Expo Real property trade fair, joining more than 2,000 exhibitors from 41 countries also descending upon the Messe Munchen venue for what promises to be a busy conference.
Judging from talks with delegates and various ‘outlook’ reports presented in the run-up, it seems the mood this year will be one of calm observance of all the factors affecting the property market.
There is a slowdown in European GDP growth at this stage of property’s ‘super cycle’.
UBS Asset Management says in its Real Estate Summary that the market sees a shift from a cautious curtailing of Quantitative Easing (QE) towards discussions by the European Central Bank about how to expand asset purchases and cut interest rates.
‘The past few quarters have been dominated by a concurrent slowdown in price growth and transaction volumes. We ascribe this “pause” to several factors: a shortage of product for sale, increased uncertainty regarding both politics and the economy and a recognition amongst buyers that prices were historically elevated.’
Ali Otmar, deputy head of investments at London-based Tristan Capital Partners, is taking all this into account as he prepares for Expo. ‘People are candid at Expo and I expect the slowdown will be a big topic,’ he says.
‘I think the mood will continue to be good because companies have been very successful at fundraising and that will continue. There has also been rapid appreciation, meaning companies are making money without doing much in strategy terms. From our point of view this is an interesting time because it’s clear that in many economies there’s a slowdown. However, I would say that while this slowdown worries us, it’s not as bad as in previous cycles.’
He adds: ‘I’m interested in getting the banks’ view on what’s ahead because obviously they have been operating under constraints and now for the first time, they are financing themselves at very attractive rates.’
Positive but selective
Robert Stolfo, managing director of client portfolio management at Invesco Real Estate, will be at Expo Real for the fifteenth time this year. He is looking forward to speaking with people from across the industry, including some investors from Asia.
‘We will be discussing new projects. We are investing from core to value add, across asset classes including residential, so we have very broad opportunities in terms of investments and products,’ he says.
‘The end of the cycle has been the theme for the past three years, so maybe it will happen at some point and the prediction will come true. In the current environment of low interest rates and quantitative easing, real estate is delivering good income and one of the big themes is where people can invest and sensibly put their money, instead of thinking it’s the end of the cycle.
‘But I do feel a certain risk awareness from the investors. They are in a selective mood – but a positive mood. It’s not comparable to the previous boom of 2006-07, when you saw people throwing money around. That is not the case this time.’
Concerns around retail property will very reasonably be a big topic this year, he adds, although if you look deeper it is maybe less the case for groceries and premium and luxury shopping.
‘And then there is a risk of recession in the EU market which will clearly be something which needs to be discussed, but when you look at the other fundamentals and the sentiment, then it’s still pretty solid.’
Thomas Beyerle, head of research at Catella, also puts his finger on the stage of the property cycle and the challenge that lies before investment firms.
‘The industry is at the end of the super cycle and on the one hand things are evolving with money continuing to come into property, but on the other hand you wonder where the property will come from.’
Residential and logistics
Beyerle highlights residential property as also being a big talking point, in particular, trends in micro-living. ‘The first developments in trends such as micro-living are taking place, with pressure to do so coming from local councils. With new lifestyles and the rise of micro-living, the question is: how can we as investors deal with these new use structures?
‘A lot of investors with big pockets are launching residential funds, so there are reasons to be positive,’ he notes.
‘The negativity comes from politics and the lack of properties because we are in the final phase of the market, when you have to buy portfolios.’
The mention of negativity from politics turns the spotlight on another big talking point – the politicisation of real estate where public opposition is being felt by property owners in a number of different countries (see article on page x). How local authorities can work with the real estate sector is likely to be higher on the agenda.
But away from rent controls in the residential sector and potential local opposition to big box warehouses, there is plenty of opportunity in emerging segments. And with just a few weeks to go before 31 October, Brexit will no doubt rear its head.
Rob Wilkinson, CEO of AEW Europe, expects Expo Real to be as busy as ever – if not more so. ‘Lower interest rates for the foreseeable future and the volatility in capital markets are continuing to drive investor demand for alternatives and real estate in particular. This demand has been focused on the German, and to some extent, the French markets, to the detriment of the UK which is suffering from Brexit concerns.
‘This is continuing to drive pricing and investment volumes in the German market and we expect this to be reflected in the attendance levels at Expo. It could be one of the busiest Expos ever.
‘Investors will undoubtedly be looking to continue rebalancing their portfolios and increase their exposure to logistics and residential. Logistics deals continue to be hotly contested with yields under downward pressure. Residential provides further diversification and a range of investment types from PRS to senior housing and student accommodation. Both will no doubt be high on the agenda in Munich.’
In addition, structural trends will be in evidence. Invesco’s Stolfo will set aside an hour out of his diary to visit the proptech area. This year sees a whole new hall open, as technology takes over ever more of the venue.
Named NOVA3, it will provide a dedicated space for the theme of innovation. Seventy-five start-ups will be showcasing their digital products, solutions and ideas in Tech Alley. The young companies will again have the opportunity of presenting not only their products but also themselves to the audience, in a Tech Talk Zone.
International consultancy Drees and Sommer will deliver a keynote on intelligent networking of people, buildings and business, introducing audiences to AI-powered buildings which learn to think. At the world of hospitality section of the fair, the firm will host stakeholders and partners from the sector – at least those who aren’t busy running local hotels during Expo.
‘Our association with Expo Real runs deep,’ says Steffen Szeidl, who sits on the executive board of the company.
‘We have been participating since its very inception in 1998. However, each year we come back with a renewed zeal to showcase our successes and absorb the novel trends emerging from the industry.’
The organisers say NOVA3 is a sign that property firms are latching on to the potential of technology for their business.
‘The theme of innovation in the context of increasing digitalization is gaining importance and leading to increased demand from the real estate sector,’ says Claudia Boymanns, exhibition director of Expo Real.
‘We are thrilled to be exhibiting at NOVA3 because it’s an ideal ecosystem for bringing new inspirations and competencies together. I am particularly excited by the large number of start-ups that will be presenting revolutionary and potentially disruptive ideas, reaching beyond the limits of what is considered possible.’
Trending topics at Expo:
- Cycle end is nigh: But when?
- Secondary cities: Yields appeal or down-curve risk?
- Politicising property: Landlord squeeze ahead?
- Resi supremacy: Housing the money magnet
- Pricing: sky’s the limit?
- Retail in retreat: Where is the turnaround?
- Proptech: Adapt or die?
- Logistics: Size and space issues