An International Conference of The Counselors of Real Estate was recently held in Vienna, Austria from June 3rd to June 5th. We thought it appropriate that our first International Alert focus on a summary of key insights and observations that were forthcoming from that conference.
The major take-away from the conference was an indisputable awareness that the economic linkages between the US, Europe, and the rest of the world grow stronger each day. The tight linkages of the capital markets and multi-national corporations continue, but the linkages have evolved to include smaller companies, temporary workers, consultants, and economic activity. No major economy can isolate itself and ignore the financial and economic shockwaves that come from other parts of the world. Prudent investment decision-making can only be made with a strong knowledge of the global economy.
Since the beginning of the European Debt Crisis, member countries of the European Union have not agreed on the best way forward to resolve the crisis. Germany, the economic engine of Europe, believes that any future funding of sovereign debt, or funding to recapitalize banks, must be coupled with guarantees of steep budget cuts by those countries receiving a rescue package. On the other hand, many of those countries who are seeking emergency funding contend that the austerity programs are too severe and are pushing the entire continent into a recession. As one contemplates the wide-ranging viewpoints of so many different countries that are so culturally diverse, one recognizes the tremendous challenges that lie ahead to arrive at solutions that will be acceptable to such a varied group of interests. One thing is certain: an acceptable plan of action to solve the European debt is going to take time, patience, and a degree of flexibility on the part of key stakeholders.
Despite the concerns surrounding the European crisis, the conference highlighted some very positive trends and events taking place on the continent. While most economists agree that Europe is in a recession, there are areas of Europe that are flourishing. Of course, Germany has the strongest economy. However, the conference helped “illuminate” the fact that there are other geographic markets that are performing very well despite the overall slowing of the region’s economy. One such area is northern Italy. Hugh Kelly noted that during a visit to Milan last March, he “saw an amazing amount of development occurring there, particularly as financial and insurance giants like Allianz and Generali seek to move operations from centuries-old buildings into more modern offices.” He went on to state that “The Italians, in particular, caution against any ‘quick’ reading of economic statistics for Italy for two reasons: first, Italy’s economic strength in the north continues to flourish, even as the regions from Tuscan southward struggle; second, as much as 30% to 35% of Italian economic activity is in the ‘gray market’ of off the books commerce.”
Vienna is another market in Europe that should not be overlooked; the city is a vibrant urban center with significant new development underway. One of the most impressive projects under construction is the Vienna Central Railway Station, one of the largest railway stations in Europe. The architecture is world class; the signature design feature is a new translucent roof that will cover, and provide natural light over all of the train platforms. The Central Rail Station is the focal point of a new mixed use transportation oriented development that will ultimately include 5,000 apartment units and office space to accommodate 20,000 people. The project is expected to be completed in 2015 and will be, by most accounts, among the most impressive new development initiatives in Europe.
Turkey was also identified as another rising economic star of Europe. Turkey’s GDP grew by 9.2% in 2010 and by 8.5% in 2011. While economic growth in Turkey is forecasted by the European Commission to slow considerably this year to 3.3%, it is projected to rebound to somewhere between 4.1% to 4.6% by 2013; it will be among the fastest growing economies in Europe. According to the European Commission, “Turkey’s fiscal condition in the past decade has been an impressive success story. In the wake of the 2001 financial crisis, the government managed to cut the public debt to GDP ratio from 75% to 40% currently.”
The state of the European capital markets was discussed at length during the conference. Art Pasquarella, CRE, noted that what struck him most about capital market conditions in Europe was how in many ways they mirror the trends and preferences in the U.S. property markets. He specifically noted the bifurcation of European capital markets with both debt and equity capital focused on stabilized assets in primary highly liquid European cities, while noting a dearth of investment capital for properties in secondary European cities. European banks – as was the case with U.S banks at the peak of the financial crisis – are under enormous pressure to deleverage, and as a result, are extremely reticent to make new property loans.
The conference was highly successful and will set the benchmark for future global forums.
The External Affairs Committee welcomes feedback on these issues as well as identification of issues you think are critical to real estate and/or of interest to Counselors and the broader industry.