EXPO REAL 2016: Curiosity and caution descended on the Messe Munchen exhibition centre this week when thousands of suited bulls and bears landed at Expo Real.
The bulls in the hall chattered about how real estate was the star of the show for investors – the yield gap compared with bonds meant fundamentally there was value everywhere. As a result, yields have tightened in almost every European market since the last mass Munich gathering.
In Spain, a dog market plagued with economic turmoil only a few years back, some have been buying prime office and retail assets at yields as low as 3.5% following a strong rebound in confidence.
But buying at historically low yields never makes investors truly comfortable and there is an overarching sense that “we are late cycle”. “Nothing is cheap these days,” one German investor groaned. “A year ago things looked expensive, but looking back maybe it was cheap. Maybe next year we will think the market now is cheap.”
Meanwhile, Germany’s banks have also prompted raised eyebrows, with some lending domestically at pre-crash LTV levels of 80 to 90% and at tight margins too. Maybe it was that bullishness that made the German stands the most vibrant ones – Kanye West was heard pumping in the background and cigarettes were seen being handed out as marketing promotions.
Nowhere was the mix of curiosity, bullishness and caution clearer than around the UK stands. “What do I think of the UK? I don’t know! That’s why I’m here!” an intrigued Italian investor told me before a BPF-hosted breakfast. Representatives from the North had come to tell us how Brexit will create opportunities for the regions as London “overheats”. While the Knight Frank stand was buzzing about the overseas money coming into the country, elsewhere those piling their cash into London merely as a currency play were snottily written off as “low-information investors”.
After all, it was only last week the West End was hit with an astronomical business rate rise which could make it less affordable for tenants, and the City has a financial services cloud hanging over it. For those worrying about a hard Brexit, London was a no go, but for other pan-European investors – staring at the alarmingly low yields in Spain and Germany – London is for the first time in years becoming an opportunity.
Logistics was the only sector about which delegates were comprehensively bullish, buoyed in part by GIC’s ongoing purchase of P3, for which there was considerable competition. The cycle might be near its peak but the fundamental evolution of the sector in terms of e-commerce and efficiencies of scale are somewhat separate.
In one of Expo’s cavernous hangars all these talks ground to a halt on Tuesday when someone left his bag in the corner. Security cordoned off the area for half an hour, police were called in and visitors were moved to the other side of the hall. Everyone hoped it was not a serious threat, but as they waited along the red tape stretched from panel to panel, it was a reminder that the world is on edge, confused and cautious. It seems most of the property industry feels the same way.
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