31 January 2013 | InterContinental Hotel, Park Lane, London

EY Real Estate and Hotels Workshops

‘Setting a course for the future’

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Foreward

Is it different this time? Signs of recovery in many economies are reflected in growing optimism among real estate professionals about the potential to do deals this year — but will participants be able to avoid repeating the mistakes of the past?

EY’s Eighth Annual Real Estate Workshop, Capitalizing on recovery: Building a leading business, focused attention on how to maximize the opportunities and overcome the challenges that lie ahead in 2014 and beyond.

Professionals from across the real estate sector, including owners, developers, institutional investors, lenders and corporate occupiers gathered to consider the landscape. EY professionals and industry leaders shared their insights through presentations, panel discussions and debates.

But is it different this time? This underlying question arose throughout the day: will the risk of over-leveraging and the potential for heightened deal competition push up deal values? So far, memories of past mistakes are suffi ciently fresh that caution and restraint are being applied in the consideration of investment opportunities.


Highlights

  • Seventy-nine percent of real estate professionals are more positive than they were at this time last year.
  • Economic confi dence, low interest rates and a business-led recovery are all vital requirements for enabling healthy and sustainable real estate markets.
  • Competition from new market entrants and the sheer weight of capital looking for a deal means that 2014 remains a challenging year for investing capital that has been raised.
  • The real estate sector is becoming more professional, with experiential, competitive and regulatory drivers encouraging a greater emphasis on quality of people, systems and risk based decisions.

 

 

“I welcome the optimism that seems to be coursing through the markets now but there is still a great deal of underlying fragility and we need to be careful that over-exuberance in investing, borrowing and lending is avoided.”

Dean Hodcroft
Head of Real Estate, Hospitality & Construction, UK&I

"We are seeing a signifi cant increase in real estate activity across Europe. There is intense competition for prime assets and perhaps, as a result, 2014 will be the year of the secondary markets."

Ad Buisman
Netherlands Real Estate Leader, EY


It is different...for now

Among the real estate professionals attending EY’s 2014 conference, 79% were feeling more positive than they were at the same time last year. After all, US GDP grew about 2% in 2013, and is expected to to grow 2.8% in 2014. The UK GDP grew by 1.9% in 2013, its strongest growth rate since 2007. UK GDP growth is expected to average 2.25% in 2014 and 2015. There are even some encouraging signs from the Eurozone. Investors are actively monitoring opportunities in Spain, Italy and Greece.

Economic confi dence is vital to driving real estate activity. Asked what would have the most impact on their business in 2014, 38% of real estate professionals pointed to the EU or UK economy, 28% to the global economy and 26% to capital markets. Just 8% thought EU or UK government policy would have the most signifi cant impact on their key business decisions.

The recovery in economies such as the US and UK is fragile and continues to be consumer driven. Central bank stimulus, whether from the Federal Reserve, the Bank of England or the European Central Bank, has played a major role so far. Interest rates are a cause of concern for real estate participants — rapidly rising rates could derail the recovery and frustrate investment plans. For the moment, however, policy makers and bankers appear determined to keep interest rates low due to the fragile nature of the recovery.

Even within regions and markets, some countries and sectors could recover more quickly than others. Real estate players need to do their research to understand the high-level statistics and identify local trends.

79%

were feeling more positive than they were at the same time last year

“You can’t rely on averages. You need to drill down to understand what’s happening within different regions, markets, sectors and segments.”

Mark Gregory
Chief Economist, EY

"Central bankers, particularly in the US and UK, are desperately trying to persuade people that interest rates won’t go up — because that would quickly damage confi dence. At the moment Europe, the UK, the US and Japan all have infl ation rates below target, so that suggests there is no need for or likelihood of interest rates rising in the near-medium term."

Mark Gregory
Chief Economist, EY