Security, Scrutiny And Late Cycles At MIPIM 2018
CANNES, France: The 2018 MIPIM property conference in Cannes has a different feel to it.
The spring sunshine still warms delegates and dazzles as it reflects off the Mediterranean. The rosé and champagne still flow as more than 24,000 property professionals from around the world descend upon the small town on the French Riviera.
But there are a few slightly disconcerting differences from previous years: increased security and scrutiny, and a feeling that the sector is one year closer to an inevitable downturn.
Members of the French army carrying machine guns patrol up and down the famous Boulevarde de la Croisette, a sign that events like this are terrorist targets, and a reminder of the attacks in nearby Nice in 2016 in which 87 people died when a lorry mounted the pavement and drove into crowds.
Delegates must pass through metal detectors to enter the main conference centre or access the jetty where the yachts hired by many firms are moored, creating huge queues not normally seen. No one complains, but it brings a subtly different atmosphere to moving around the town.
Then there is the scrutiny. Among U.K. delegates in particular there is an increased awareness that MIPIM has a reputation as a place for bad — and sometimes unacceptable — behaviour, and that the eyes of the media will be on the event this year.
Companies had been warning staff ahead of the conference to look out for undercover journalists on the hunt for pictures and stories.
“Our company sent us an email yesterday telling us to watch out for an undercover journalist called Katie from the Times,” one female delegate, who declined to give her name or company, told Bisnow. “She’s young and pretty and is trying to get invited to parties so she can report on bad behaviour there.”
The “undercover” journalist in question turns out to be Times Senior News Reporter Katie Gibbons, who is clearly listed among the delegates on MIPIM’s website. Not the deepest cover.
When it comes to real estate and the sentiment of delegates, the mood matches the weather forecast — sunny for the first two days with rain predicted for the third and final day.
No one was predicting an imminent downturn, but there was awareness that real estate has been on a nine-year bull run of increasing values almost across the board, and that this will come to an end sooner rather than later. The slogan of the conference could easily have been “late cycle”.
“It is a race against time to prepare for the next downturn, in terms of making sure the portfolio is optimised and you have the technology, data and people to withstand it when it comes,” Allianz Real Estate Chief Executive François Trausch said on a panel. With a €56B portfolio, Allianz is the second-largest direct owner of real estate in the world.
“But I am optimistic because I don’t think people are complacent, they are aware that we are late in the cycling and preparing accordingly,” Trausch said.
“The recent equity markets shock was caused by U.S. wage inflation coming in very slightly higher than expected: that is a signal of how fragile sentiment is and how finely balanced markets are,” CBRE Head of Global Research Nick Axford said. “But bad news for equities and bonds like rising inflation can be a good reason to invest in real estate.”
“If you look at what usually causes the end to the real estate cycle, it is an end to the U.S. business cycle and rising rates tipping above property yields,” CBRE Global Investors Head of EMEA Jeremy Plummer said. “The U.S. is further ahead in the cycle and the U.K. is further ahead than Europe, but there is still a good spread between real estate yields and bond yields.”
This consensus that a downturn may be soon is not causing investors to stop spending: in its Global Investment Atlas report, Cushman & Wakefield predicted that investment volumes in 2018 would be equal to or surpass the record $1.6 trillion spent in 2017. It is just altering how they invest.
“Of the investments we make this year the majority will be in debt,” TH Real Estate Global Head Mike Sales said. TH is the global real estate investment manager owned by U.S. pension fund TIAA. “At this point in time you want to be further down the capital stack. But it also provides great income — we can get 5-6% returns on lending with a loan to value of 65-70%.”
Both Cushman in its Global Atlas and CBRE in its 2018 Investor Intentions report predict that, in spite of reductions in Chinese investment due to government regulation, increased investment from Asia will continue to support global investment volumes.
But when it comes to the destination of capital flows, CBRE painted a different picture to expectations for 2017. Last year the investors it surveyed expected to deploy more than half their capital in the U.S., spurred on by the prospect of a “Trump bump,” Axford said. That investment strategy did not play out in practice, and this year investors expect to deploy capital almost equally between Europe and the U.S., enticed to Europe by the prospect of economies that are further behind in the economic cycle and thus have the potential for greater growth.
In terms of individual cities, London was the most sought after among global investors — in spite of uncertainty around Brexit, yields are more attractive than those in Asian cities and also some European cities, where prices have shot up sharply in the past two years, CBRE said.
The sun is still shining — for now.