31 January 2013 | InterContinental Hotel, Park Lane, London

EY Real Estate and Hotels Workshops

‘Setting a course for the future’

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Conclusion

2013: a year of new beginnings

Foretelling the future for real estate is a risky undertaking. Nevertheless, there is good reason to anticipate a year of increased activity in 2013 across a range of real estate transactions as market participants explore both established and new opportunities.

Real estate executives are back in buying mode. In Europe, North America and emerging markets, deal activity is set to increase, though by how much and how quickly remains to be seen. Ongoing economic uncertainties in Europe and the US could have an impact, negative or positive. On the upside, private investors want to invest in something they can see and touch, and there is capital in the market looking for the right opportunity.

Transactions will not necessarily follow previous models. Growing interest in the concept of social enterprise, for example, could open up a new real estate investment market, potentially triggering a virtuous circle of regeneration and renewal in major cities. Other opportunities are also emerging. When speaking at EY’s 2013 conference, Howard Roth noted: “There are a lot of new and interesting trends in real estate: own to rent, homebuilder initial public offerings (IPOs), non-traditional real estate investment trusts, private equity readily available although fund-raising still difficult, commerical mortgage-backed securities coming back strongly, financing more readily available and cheaper, and my personal favorite — the Empire State Building IPO.”

Some locations and investments will retain their past popularity, as illustrated by the sustained interest in London real estate, though strategies for how best to capitalize on the opportunities offered in London and other major global cities may differ. There are choices to be made. Should a development strategy be focused on achieving market coverage or profitable growth? Should it be pursued with partners
or independently? Should investments be focused on established or emerging markets? Should core or “value add” assets be the strategy? Should fund managers follow a consolidation play or go it alone?

Choosing the right strategy for the right organization will ultimately depend on individual assessments of real estate market fundamentals, organizational strengths and risk tolerance. No one doubts the growth potential offered by emerging markets, for example, but the risks and barriers are also perceived to be substantial.

“Although still fragile, many statistics seem to suggest the US economy is on its way to recovery, as demonstrated by improved customer confidence, housing statistics, industrial activity, car sales and companies' earnings. Our banks also have higher capital ratios than those in Europe and are still lending. Sentiments seem to be improving, and we have all seen over the last five years how important sentiments can be. They seem to drive the economy in many ways.”

Howard Roth
Global Real Estate Leader, EY

“The future may remain uncertain for many asset classes, but the climate is looking more favorable for real estate investments. Transaction volumes look set to rise in 2013, supported in large part by international investment, while the continuing Eurozone crisis and inflation fears may actually help to stimulate activity rather than dampen it. While questions remain over how real estate investments will be financed and, especially, the role of banks, there are increasing signs that 'alternative' sources of financing may become available.”

Ad Buisman
EMEIA Real Estate Leader, EY