Cha cha changes


Institutional real estate investors need to embrace the new and unusual if their strategies are going to remain strong, heard attendees of MIPIM 2017

The institutional real estate world of the future, and the technology that will make it tick, was one of the major talking points at MIPIM 2017 in Cannes.

In one panel, speakers suggested that the future of logistics real estate investment will depend on the way the industry considers and incorporates technology developments today.

In particular, new technologies such as blockchain, along with how effectively firms handle big data, will have a resounding effect on the shape of logistics assets implementing ‘last-mile delivery’.

Logan Smith, head of logistics for the international investment group at BNP Paribas Real Estate, said: “There is confusion in the industry about what last-mile is and what it is going to look like.”

“It could be somebody’s garage or the boot of a hired car. We are used to conventional real estate and we want it to look like a box”, suggested Smith.

The growing trend of shopping online and ecommerce has not just taken away from traditional retail rental space, but has fuelled demand for tailor-made warehouse space.

Smith added: “We need stay on guard and shape what this looks like or we’ll all be holding onto the wrong assets.”

According to Smith, available warehouse space in Europe is a third of that in the US, meaning the potential scope of what companies and investors believe last-mile delivery assets to look like in Europe is large.

Raimund Paetzmann, independent advisor and former Amazon real estate director of operations for Europe, the Middle East and Africa, insisted that companies are doing what they can to cope with the change.

He said: “We are using analytics to crack big data and the more transparent it is, the more efficient it will be.”

Sessions also addressed changes to local real estate markets. For example, one focused on the speed of evolution in the Spanish residential real estate market, with speakers warning that it is up to real estate investment companies to keep up.

Attendees heard that in Spain an increase in renting homes over buying, and increased equity in the market, is set to shape institutional real estate investment.

Javier Rodríguez-Heredia, head of the office and residential segment for Hispania Actives Immobillarios, said: “Long-term renters will grow and younger people are changing their thinking.”

He added: “Five million of Spain’s population is 15 to 24 and ... 50 percent of them will be renters.”

Panellists noted that Spain is enjoying a period of political stability in comparison to many of its European neighbours, while investment is now close to pre-crisis levels.

Juan Velayos, CEO of developer Neinor Homes, said: “We are creating a new market, we need to adapt to change or [we] won’t be part of the game.”

“There is equity in the market now.”

Neinor Homes plans to list up to 60 percent of its shares on the Spanish stock exchange, the first time a residential developer has done so in a decade.

Velayos said: “You need strong institutions and in the future you will have five or ten big guys who will be leading the market into the new generation, it is the same in France, the UK and the US.”

In the US, however, the investment horizon is looking increasingly towards the long term.

Changing market trends in US real estate are becoming harder to track, causing investors to look for longer-term investments.

Christopher McGibbon, head of the Americas for TH Real Estate, said: “There is a change in the way investors are thinking. They are now looking 20, 30 or even 40 years ahead.”

One cause of this could be the increasing impact of coworking and technology, which is changing the way people use office space. “People will not stop working, they are just changing the way they work,” McGibbon explained.

A new report from Green Street Advisors has suggested that the new supply in office space will mean it will be increasingly harder in the coming years for landlords to increase rent, a prospect that investors will have to take into consideration.

McGibbon said TH Real Estate is taking an analytical approach to such changes, so that it can best predict where the next gentrified areas might be, for example.

Eran Polack, CEO and co-founder of HAP Investments, warned: “Investors are increasingly not just looking towards return, but also self-preservation.”

McGibbon added: “You have to pick your stock. If you don’t stay ahead of the trend, you will get hurt.”

This kind of adaptability is also evident in India, where investors are being invited to develop millions of homes over the next five to seven years, and to create dozens of ‘smart cities’.

The ambitious plans, unveiled at the conference, are an attempt to encourage international investors into the country’s potential $2 trillion real estate sector, through smart, affordable developments.

A change in government attitude has seen sharp reform of regulations, with the aim of attracting global investors.

A change in attitude towards investment was required in order to make this change, but there should also be a change in the capital is deployed if investors are to make the most of opportunities in the country. Girish Grover, CEO at Turnit Capital, said: “Execution is the biggest challenge in India at the moment.”
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