ULI: Read between the lines for the real story

In February 2009 the atmosphere at the Urban Land Institute’s annual beano in Paris was downhearted, penitential. The biggest property crash in living memory had begun 18 months earlier. A further six months would pass before the bottom was reached. Almost my last act as editor of Estates Gazette was to act as inquisitor during panel sessions. The conference was held at the lightly-faded Westin Hotel, near the Place Vendome. A word sketch of the mood in 2009 is etched on a mug UK property veteran Harvey Soning distributes. “Dear God, just let there be one more property boom. I promise I won’t piss it all away this time.”

 Seven years have passed. London has boomed. The Capital is now on the verge of...well, who knows? Let’s just say, not booming. The ULI convention continues, unchanged, same month, same lovely city, same four-star venue – and same Emerging Trends publication. Just before Christmas I bumped into a man involved in the the 2016 report, still put together by PwC, who relish the opportunity to nuzzle up and interview 500 leading real estate figures. Group intelligence which makes Emerging Trends the most authoritative report on the sector you are ever going to read: As long as you read between the lines.

 All reports are written in a code designed to “Ac-Cent-Tchu-Ate the Positive” as Bing Crosby crooned in 1944. In 2009 Emerging Trends interviewees anticipated a “slow recovery, hampered by risk aversion... REIT stock portfolios will lead any rebound. Investors need to focus on asset management and leasing strategies to hold and attract tenants, limiting declines in property cash flow. Investors will need to reorient acquisition strategies away from high leverage and financial engineering, and expect more moderate returns in any recovery.” The biggest crash since 1929 was in full flood.

 The prolix headline on the 2016 Emerging Trends suggests: “Amidst continued strong capital flows in Europe, the real estate industry focuses on contending with disruptive forces and meeting the needs of occupiers.” Easy enough to translate: “the money still pours in, but for how long? The world has become a much scarier place, what with terrorism, unchecked immigration in Europe and the Middle East at boiling point. So lets just stick to looking after our clients. That always works.” My source warned before Christmas that when the report came out, it would be a bit gloomy. Turns out that way, but only after translation.

Respondents voted Berlin top of the list of spots to invest, a poll that may now be out of date given the national mood has turned sour over immigration since the late Autumn interviews. The good news (if you think like Arcadis – see below) is that London has been relegated, and is no longer in the list of top ten investment destinations, therefore prices will ease. The bad news is that AXA has persuaded Denmark’s biggest pension fund, ATP, to take a 50% stake in a €240m deal to buy two hotels in the City. One thing supercilious London agents hold to be true is that when the Danes storm the market, it is time to flee, screaming.

 Always look on the bright side of life

 The boss at one of London’s aristocratic estates complained over a cup of tea the other week about how rising construction costs are crimping development plans. “In 2012 we built a 22-flat scheme for the price we are being quoted today to build 12 flats”. Correct, the development market continues to boom in London. Contracts signed are costly to abandon. But those yet to commit are seeing appraisals wrecked by soaring tender prices. Never mind, this is a good thing, at least according to global cost consultants, Arcadis. Really? Why? “Delayed investment decisions are reducing actual workload and we are seeing early signs of a return to reason in procurement,” says director Simon Light, a man who clearly looks on the bright side of life. Since Jan 2014 build prices in the capital have risen by 18% says Arcadis, warning London is now the second most expensive city in the world to build in, after New York. But fear not, says Light. “With inflated construction costs threatening viability, workloads look to be losing steam. We expect to see the rate of inflation fall to 4-5 per cent in London for 2016 and for a real opportunity to ‘reset the dial’ in 2016 and 2017.’ Perhaps, but in which direction?

This article appears in the February 2016 edition of PropertyEU