EPRA 2019: What are the key challenges facing European property leaders?

The European property market is challenged by labour shortages, rapid urbanisation and a wave of tenant insolvencies, according to speakers at the European Public Real Estate Association Conference 2019. Chief executives including intu’s Matthew Roberts, Grainger’s Helen Gordon and French REIT Gecina’s Méka Brunel voiced their concerns on a number of themes at the annual event, held this year in Madrid. The conference was held at a tough time for Europe, with the lenders preparing for cost cuts and consolidation after the European Central Bank extended a five-year run of negative interest rates. Policymakers fear Europe is at risk of falling into a deflationary spiral, resulting in persistently low interest rates eating into the banks’ profits. As the former Greek minister of finance, Yanis Varoufakis, said: “The key challenge [in Europe] is the lack of investment. We have the highest level of savings in the history of capitalism and liquidity and very low levels of actual investment. “This incongruity is at the heart of the problems we have, from negative interest rates to populism, which feeds on the incapacity of savers to make any money on their savings, while pension funds are crashing. The low level of investment will never increase if we continue to push interest rates into negative territory.” Against this backdrop, property chief executives are grappling with more sector specific  issues. Intu chief executive Matthew Roberts said: “There have been a number of tenant insolvencies during the course of 2018 and 2019 and retailers are not making as much profit as they’d hope to make and, in the case of intu, this is because we had too much debt for this time in the cycle. “The reality on the ground is that several of our centres in the UK and Spain are by and large full of tenants, customers and, most importantly, visitors. We have good vibrant brands coming to the UK, particularly international brands, paying decent levels of rent.” The key challenge [in Europe] is the lack of investment. We have the highest level of savings in the history of capitalism and liquidity and very low levels of actual investment Roberts added that he was currently meeting the firm’s top 30 customers. “They want to partner with us; most have business models that are not generating enough profit. We are seeing how we can we work together and put as many people outside their front door as possible. We are investing a lot in leisure on theme parks, golf, bowling, to give customers and visitors another reason to visit.” Thierry Leleu, chief investment officer at Cromwell European REIT, which focuses on offices, logistics and industrial, spoke of the pressure to cold call potential property sellers. “Almost 80% of the deals we are doing are off market,” he said. “We need to proactively source transactions by cold-calling people who own buildings we believe are not core to their strategy to find values.” Meanwhile, Grainger’s Gordon touched on the rise of populism and talked about the need for property companies to engage better with the public and their own employees. “Real estate is becoming a lot more hands on; you can no longer leave it just to long-term leases, you have to  be really engaged,” she said. “This pulls back to populism and the need for public engagement with customers as well as engagement with your own employees. We have large numbers of employees and a very wide customer base.” Gordon added that her firm’s customers had also become “very demanding” given the higher expectations around the renting model, with people renting for longer in life. “More people are finding renting acceptable and people are renting for longer, until they are over 35. They are a technology-enabled group that expects a lot more from us.” Another cause for concern in Europe was labour supply shortages. Nick Preston, fund manager for Tritax EuroBox, said this was hurting the logistics sector. “The concept of European logistics has emerged over the past few years, driven by the impact of e-commerce,” he said. “These retailers are moving their supply chains and they need more efficiency and faster delivery. Employees at these logistics hubs are critical but many areas of Europe have shortages of labour supply so occupiers are very selective over location.” Property leaders in Europe are also feeling under pressure from the rapid migration of populations to cities. Ultimately, urbanisation combined with the need to make buildings more sustainable and technologically advanced is the big issue facing property leaders in Europe across all sectors. As Gecina’s Brunel pointed out: “In 2050, or possibly sooner, more than 70% of the world’s inhabitants will live in large cities and we need to be capable of integrating them. The question is which cities will have the capacity to address this while delivering the economic returns we need?” To send feedback, e-mail anna.ward@egi.co.uk or tweet @annaroxelana or @estatesgazette