It was Richard Jeffrey, the chief investment officer of Cazenove Capital Management, who, during his keynote address, perfectly described the theme of our 2016 annual Property Investment Seminar: “making sense of an uncertain world”.
More than 160 clients, business partners and friends came to The King’s Fund at the end of May to consider the global economic conditions and the implications for real estate as an asset class.
Richard Jeffrey said that economic instability and subdued growth rates were here for the long term and that business and real estate leaders must adapt their strategies accordingly.
The pre-crash market, where 3%-plus GDP growth rates in many Western economies was enjoyed, was over, he added. The UK’s current growth rate of nearly 2% and a return to budget surpluses for many countries were more realistic goals.
The second speaker, Professor David Cadman, the founding partner of Property Market Analysis, said that volatility, uncertainty, complexity and ambiguity were the marks of the current global economy. Climate change, he argued, was the most pressing challenge for investors.
Helen Wilson, managing director of Ipsos Loyalty, the customer experience and employee research specialist, delivered a fascinating look at the difference between perception and reality. Out of every 100 people aged 20 years or over how many do you think are either overweight or obese, she asked? She gave three possible answers: 28%, 40% or 62%. The majority in the room went for 40%. The answer, in fact, is 62%. She concluded that in most countries people underestimate the proportion of overweight or obese people.
The recent collapses of both BHS and Austin Reed remind us how tough the retail sector is. Ross Clemmow, the retail director of Debenhams, revealed how his company was adapting to the ever-changing retail landscape. The new battleground, he said, was connecting mobile devices with stores.
Over the last 18 months “mobile selling” had been driving visits, sales and footfall into stores. In the next 6-12 months “mobile service” would begin connecting customers and colleagues via mobile and in the next 12-18 months “mobile relationships” would give customers the tools to manage their relationship with the retailer, he predicted.
The big challenge for property investors is how to adapt their strategies in such a fast-changing world. Frances Ketteringham, director of research, strategy and risk at Mayfair Capital, explained why we are focused on income volatility and managing income risk.
The cyclical nature of the property market will drive income volatility, she argued. A robust risk management framework is important to help manage this volatility, and stock selection is also critical. Portfolios must reflect the new world being shaped by globalisation, digitalisation and changes within our society, she said, adding that thematic research combined with market and economic analysis helped us to build a long-term view of occupier demand. Property benchmarks are increasingly based on obsolete property and are becoming less representative.
The seminar was brought to a close by James Thornton, Mayfair Capital’s CEO, who delivered his forecast for the property markets.
Capital markets are in a state of flux, he said. On a 3-to-5-year view we expect property to do well, but you need to own the right assets, he added. If there is a downturn, then property looks resilient, because the fundamentals look sound whilst the gap between property yields and the risk free rate indicates fair value across the asset class. Attractive buying opportunities may arise in the coming months, so now is a good time to be allocating cash.
But, he warned, don’t follow the herd, frictional costs are high but be mature enough to come through the cycle. Performance will be driven by asset management and rental value growth.