Embrace the Change

RE FINLAND 2019 took the pulse of the real estate industry

Mika Anttonen, founder and owner of energy company ST1 on stage. Photos: Kiinko / Pekka Rousi

Winston Churchill wasn’t known as a big real estate guy, but he did say something significant on the topic: “We shape our buildings and afterwards our buildings shape us.” RE FINLAND 2019, held in Tampere in November, showcased this shining piece of wisdom as well as many others. The biggest annual event for the Finnish real estate business did not disappoint, serving up a range of interesting topics from investment and financing to construction and services.

Ian Goldin, Oxford University Professor of Globalization and Development, was perhaps the most esteemed speaker of the one-and-a-half-day seminar. Having served as Economic Advisor to President Nelson Mandela, Goldin knows a thing or two about disruption and the virtue of good timing. We’re living amidst immense change which is also extremely inspiring, he said.

”People are sharing ideas and changing the world in unprecedented ways,” Goldin said, adding that he remains an optimist about the future – even as there are a lot of challenges we must face.

Beware the Regulator?

Jeff Rupp from INREV talked about how can the real estate industry prepare for changing EU regulations. Rupp observed that no major regulatory risks are present right now as e.g. Solvency II and AIFMD will impact the industry in a moderate way and no new burdens for real estate industry are expected.

Still, Rupp cautioned against “the Black Swan”: there are risks out there ranging from a heightened or on-going military conflict in the Middle East to an escalated trade war between US and China as well as mass immigration flows.

“Pressures with more direct economic and regulatory and tax policy implications include outcome of US election in November 2020 and the German and European political cohesion post-Merkel,” he listed.

Nordics Rising

Simon Mallinson from RCA discussed global, European and Nordic Capital Trends. According to Mallinson, European investment activity is slowing, but pockets of growth can yet be found. As ever, investors are seeking new markets and sectors to deliver returns.

“Nordic markets are gaining market share as Stockholm, for example, is setting new records,” he said, noting that Finland is the Nordic country most open to crossborder capital.

“Markets are very liquidity, yields are at lowest levels – this brings an exit risk investors must evaluate,” he summed up.

Real Estate – Villain or Hero?

Simon Durkin from BlackRock highlighted three themes in his presentation. First of all, there is increased competition for assets in global real estate. Second, the capital flows are increasingly international.

“In the current situation, building portfolio resilience is very important,” he said. This is achieved via securing cashflow, aligning to long-term, structural trends and integrating sustainability into operations.

“Sustainability is no longer optional,” he pointed out. Embrace the Change

As real estate consumes 40% of the world’s energy consumption – and contributes in excess of 30% in annual greenhouse gas emissions – it is clear that the real estate industry cannot sit on the sidelines while the fight against climate change is going on, Durkin observed.

Simon Durkin from BlackRock.

Wanted: Smart Cities

What does this mean for the industry, then? – Durkin talked about “rise of climate infrastructure” which is more carbon-wise, using e.g. Big Data and connectivity to curb emissions. “As technology is improving, moving from “bricks to clicks” will eventually yield a whole new breed of smart cities which are – in addition to more sustainable – also more connected and more personal,” Durkin believes.

Also, Mika Anttonen, founder and owner of energy company ST1, addressed the issue of climate change. Anttonen talked about the need to increase investments in renewable energy, carbon sinks and Carbon Capture and Utilization (CCU).

“We need to set CO2 emission reduction obligations to companies and allow Simon Durkin from BlackRock. them across the sectors – including carbon sinks – and also in the countries outside of EU,” said Anttonen.

Service Edge

Anthony Slumbers, Real Estate & Technology strategist, highlighted in his presentation just how real estate is becoming a service industry. He noted that an office, for instance, that is designed around ‘old’ work is, or shortly will be, obsolete. At present, only 57% of employees say their workplace enables them to be productive (Leesman Index) and the average desk utilization is around 40%.

“The future-proof office has to be designed for ‘new’ work,” he said, adding that offices need to catalyze human skills. Improving the pleasure / productivity of people is the “core value proposition” in all this, Slumbers claimed.

Getting Social

One up-and-coming real estate segment is Social Infrastructure which includes e.g. hospitals, nursing homes and health care. CEO Nils Styf from Hemsö Fastighets AB talked about how social infrastructure is sure to take root simply because of demographics: Globally, the number of people 60 years or older is expected to more than double from 900 million in 2015 to more than 2 billion in 2050. Still, investment levels in Social Infrastructure are low within the EU (20% below the level of 2007).

While current European investments in Social Infra have been estimated at EUR 170 billion per year, the gap in investment is estimated at EUR 100-150 billion per year.

According to Styf, the benefits of investing in Social Infrastructure are numerous enough to give make it a serious consideration. Creditworthy tenants, long leases and low vacancies are characteristic of this non-cyclical asset class. Furthermore, there is low volatility of returns and sustainable long-term demand, driven by demographic changes.

Ian Goldin, Oxford University Professor of Globalization and Development.

Simon Mallinson from RCA on stage.