The European Public Real Estate Association (EPRA) launched its annual conference with positive numbers and predictions of growth for the sector. Buoyed by a spate of IPOs 鈥� most notably in Ireland and Spain 鈥� the European listed sector is also expected to grow because of institutional allocations shifting in its favour.
But the opening conference sessions in London highlighted how vulnerable listed property companies in Europe are from macro developments that have the potential to be highly disruptive.
The US 鈥� birthplace of the REIT and home to the biggest listed real estate market globally 鈥� is facing the prospect of rising interest rates as its economic recovery strengthens. The euro-zone, in contrast, is staring into the abyss of deflation.
As economist Andrea Boltho noted ominously, the euro-zone is one economic 鈥渟hock鈥� away from slipping in and meeting its Japan-like destiny. Ian Shepherdson of Pantheon Macroeconomics, whose presentation plotted 鈥渦nsustainable鈥� labour cost increases in Italy and France 鈥� said his principal concern in the euro-zone was France, which had the potential to 鈥渞uin鈥� Europe.
The dreaded d-word would be likely to disrupt European property companies鈥� investment strategies for the next few years. But it is not just economic dysfunction that threatens. Technological innovation could be one of the biggest sources of disruption.
For two separate panels on the retail and office markets, the discussions were all about technology. For the former this was the competition from online retailers. Richard Perks of market research firm Mintel revealed that online retail only accounted for 10% of the market 鈥� and 5% were 鈥榩ure-play鈥� online retailers. But this is likely to change.
In the meantime, retail landlords are having to innovate to survive in a 鈥榦mni-channel鈥� world. For Unibail-Rodamco, Europe鈥檚 largest retail REIT, the focus is on being more selective when bringing brands to its shopping centres. As CEO Christophe Cuvillier said, it is also about using technology to engage directly with customers and to provide experiences for shoppers that cannot be had online.
The technology industry is also driving changes in the office sector, mostly as tenants. Joe Borrett, director of real estate and construction at Google, talked in 鈥渧olumes鈥� rather than floorspace and 鈥渃ubic metres鈥� rather than square feet. Its new office in London鈥檚 King鈥檚 Cross will be a flexible space that evolve in line with its tenant鈥檚 activities. He described it as a 鈥渢heatre鈥� where the 鈥減roduction鈥� changes all the time.
Paul Williams of Derwent London 鈥� which is behind the flexible office development the White Collar Factory in London鈥檚 Old Street tech quarter 鈥� also spoke of providing 鈥渂lank canvas鈥� offices where the focus is on collaboration and the sharing of ideas.
David Rowan, editor of technology magazine Wired, summed up the situation by invoking Moore鈥檚 Law, which has successfully predicted the rapid pace of growth in computer processing power. 鈥淓xponential change will keep rewriting the rules,鈥� he said.
