Snazzy Titles and KFIM Trade Secrets

21 September 2017

Yesterday morning at the rather swanky Shilla Hotel in Seoul, we hosted our first ever seminar for Korean Institutional investors; the seminar title being the rather snazzy “A Guide to European Real Estate Investment”. I am pleased to report that the seminar was very well attended with quite a few of the great and good from the Korean Investment community being in attendance; which is hopefully testament to a growing reputation for KFIM in Korea following our recent acquisition successes.

The seminar stared with me demonstrating my in depth knowledge of the Korean language to fluently say “Good morning” (which, I am pleased to say, received quite a depth of applause). In the meanwhile, Ian (Whittock) was imploring me to hurry up and sit down so that he could get going. He seemed to be a man in a state of fervent excitement – really well prepared, adrenaline flowing and raring to get up on his feet to share his pearls of wisdom with those in the room. Now many of you will now that I have worked with Ian for some time and this was undoubtedly one of his best performances – eloquent, entertaining and educational. The only slight problem is that when he gets like this he does have a tendency to over-run and, true to form, I found myself making numerous hand signals, mouthing “you need to speed up” etc. from the audience, all to no avail. 

Anyway, enough of all that, now to the key points (I am currently typing this in the departure lounge at Seoul airport so under a few time pressures and the following, are therefore in no particular order). Without giving away too many trade secrets:                                                                       

  • Technology is / will change the business environment. This will have a significant impact on real estate.
  • The advent of globalisation is truly upon us – and it is here to stay. This is also going to have a structural impact on pricing in our markets.
  • In Europe, demographical changes must have an impact on the market; the population in Germany, for example, is forecast to fall from around 81 million to 67 million by 2060. This will inevitably affect tenant demand.
  • The greatest risk to our markets is unlikely to be either Donald, Vladimir, or even the young chap residing up north from where I am currently sitting. Instead, it will be rising interest rates, arguably one of the few certainties in life. However, our view is that these will only rise slowly and modestly. As such, the arbitrage between property yields and interest rates across Europe means that we are actually quite well placed, certainly on a relative basis, to withstand the impact. Taken a step further, rising interest rates could well lead to an exodus from bonds and an increased allocation to real estate. It is interesting to note that in the US, interest rates have already started to rise. However, certainly to date, this has had little or no effect on the market.
  • Brexit – well so far so good!!! We are of course expecting some headwinds, including the loss of jobs in the City. However, employment growth in the UK is not being driven through the City, it is actually coming from the Tech industries which continue to thrive.
  • In Europe the recovering economies will lead to increased tenant demand. When balanced against a current lack of supply, performance expectations should be good. The Spanish economy, for example, is growing very quickly (albeit from a low base) but has had virtually no new development.
  • E-Commerce across Europe is increasing with the UK leading the way. This will have a structural change in demand for logistics.
  • Last but certainly not least – as far as KFIM Clients are concerned, our advice would be, at the current time, not to compete against the Chinese investor. They continue to set the market and whilst the capital controls situation may have short term impact on their appetite, we expect routes to be found to get around this.

So where to invest? Why not try a few of the following:

UK: Regional offices (where we expect rental growth due to a lack of supply and improving economies) and logistics. We would not entirely rule out central London but if you do acquire, it needs to be an asset with reversionary rents. We are very conscious that if you are a true global investor, London is a must, the question is one of timing.

Europe: Logistics across the board. Due to the lack of development, offices also look interesting apart from in Poland where there has been over-development.

That’s it for now, final boarding – got to fly.

Kevin Aitchison

CEO, KFIM

 

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