MIPIM Review: real estate mood remains buoyant, despite impending Brexit and US-China trade wars

The mood at MIPIM was just as sunny as its palm-lined Croisette this year, largely unencumbered by the impending Brexit and US-China trade wars.

Germany remained popular among attendees, according to Alexander Kropf, head of capital markets Germany at C&W. ‘Sentiment is still very good,’ he told REFIRE. ‘There is a lot of money chasing product. Germany is still the safe haven of Europe and there is more capital looking than product available.’

For Klaus Franken, CEO of Catella Project Management,‘MIPIM 2019 was without euphoria or panic.’ ‘The industry remains unimpressed, despite Brexit chaos and trade wars and quite rightly so, as the environment for real estate investments, especially in Germany, could hardly be better,’ he said. ‘But scrutiny has become more intense and focus has shifted from quick deals to quality – a very healthy development.’

And ‘even Brexit, a pervasive topic at MIPIM, is not subduing the good mood’, according to Udo Stöckl, principal and managing director of real estate services group Avison Young - Germany: ‘Capital from international investors is still flowing freely into continental Europe,’ he said. ‘For German investors, the UK market also remains attractive, especially in A locations.’

For others, MIPIM 2019 was ostensibly just like the past two years: ‘a bit of Brexit talk, some clouds on the economic horizon, a bit of political risk around the globe’, according to Professor Thomas Beyerle, head of group research at Catella. ‘But looking more closely, we found that risk activity is highest among financial institutions. Their motto: risk prevention and acting with caution – especially when financing in Berlin.’

ECB brings good cheer to market

Also boosting the mood this year was the ECB’s decision earlier this month to leave interest rates unchanged, largely due to factors such as the debt crisis in Italy and the ongoing uncertainty surrounding the UK’s exit from the EU. As a result, rates will be kept on hold throughout 2019.‘Sentiment in the property industry is still very positive,’Stöckl added. ‘It has been boosted by the recent decision of the ECB to leave the base rate at zero percent.’

Others also attributed the upbeat mood to the ECB’s decision. ‘The mood remains good, mainly because a significant change in the ECB’s interest rate strategy is not on the horizon due to the situation in the EU,’ said Professor Nico Rottke, managing director of investment manager aamundo Holding. ‘But signs of market saturation are obvious: In a scenario with even price levels, I expect a significant fall in transaction volume, especially for larger deals, as in about two years’ time, managers will be unwilling to justify being among the last buyers at the peak of the cycle.’

For Michael Keune, managing director of Catella Residential Investment Management,‘the postponed interest rate reversal has dispelled all doubts from the first quarter’. ‘There is still strong investment activity and plans are calling for more and at a larger volume, not just on a national but a pan-European level,’ he said. ‘Temporary and micro-living such as student housing, serviced apartments or senior housing are the residential sub-segments currently most in demand.’

Digitalisation gaining traction

Digitalisation has also gained traction over the past year and was a major topic at MIPIM this month.‘A trend that has been emerging at MIPIM over the past five years was reinforced this year: The digital infrastructure of properties has become a pervasive topic,’ said Michael von Roeder, CEO of PropTech Sensorberg. ‘Many owners are asking themselves how to retrofit their existing buildings in the most effective way. And the pressure is high as many tenants are increasingly seeing things like digital building access or services such as digitally controllable parcel storage as key criteria in the war for talent.’

The real estate industry is now starting to view digitalization as crucial, rather than optional, which is also helping to drive its growth. ‘The willingness for digital change has firmly arrived in the industry,’ said Sascha Donner, chief innovation and product officer of real estate AI platform EVANA.‘We spoke to several established market participants who are relieved and hopeful after seeing a significant acceleration of digitalisation in the property industry. And with that, they were on the pulse of this year’s MIPIM. Against a backdrop of great weather and mood, many conversations ranged around the technological future of the real estate sector and a professional way of working with assets.

Or, as Sebastian Seehusen, director Germany at WiredScore, the global rating scheme for digital connectivity in commercial real estate, jokingly put it: ‘PropTech has firmly arrived in the C-suite because managers of real estate companies are now wearing the same sneakers as PropTech entrepreneurs.’

Co-operation across different countries is also becoming more commonplace, according to Alexander Ubach-Utermöhl, managing partner of PropTech blackprintpartners.

‘During conversations with leading PropTech experts at MIPIM, we saw an increasing willingness to work together across different countries, which is a great and necessary development,’ he said. ‘The different national PropTech industries are relatively fragmented and established market participants are still insecure due to the numerous individual solutions. With a more closely knit Europe-wide cooperation of PropTechs, geographically insular solutions could be avoided and more clarity provided to potential clients. Additionally, a cooperation of PropTechs could strengthen Europe as a location for innovation and make it more attractive among the global competition.’

However, as Stöckl warned, ‘there are many PropTechs in the market but only few that are convincing throughout and able to actually make money with their business models’.

Ultimately, digitalisation needs to form part of a bigger framework of megatrends that also encompasses globalisation, demographic development and sustainability, according to Douglas Edwards, managing director, head of group equity raising at Corestate Capital Group.‘There is not only a need for a change in approach and new structures but also for a different way of networking – both with a view to our clients as well as all stakeholders around our properties,’ he said. ‘Only in this way can we safeguard working successfully in our respective markets as well as being able to actually shape them.’ (ssk)