The Big Picture in Real Estate

[Music] thank you thank you so much for that introduction um I'm so glad to see a full house here and I'm very grateful to our panelists ladies and gentlemen welcome to this exciting panel discussion on the dynamic and ever evolving Global property Market As We Gather here we recognize that the global property Market plays a pivotal role in shaping economies and communities we also recognize the industry's volatility but also its perseverance especially after a huge hit like covid-19 and we can all agree that that was a huge hit to the global property Market this year the property Market has showcased an impressive performance in many corners of the globe with regions experiencing unprecedented growth fueled by surge in demands for residential commercial and mixed use developments experts also expect that the real estate market worldwide will reach a staggering value of over $727 trillion by 2029 these are the just some of the things that we will be discussing in this exciting panel discussion and I'm going to jump right in um with Isabelle here um so the number that I've just mentioned is truly an impressive one but many analysts are predicting that there will be a correct ction happening um very soon to the market so do you believe on a global level that the property Market will see this correction happening soon and when do you predict this happening good good morning I think in fact the correction took place if I look at the us we have seen values dropping for offices probably close to 40% and even the other asset classes that are more resilient have also experience a significant adjustment residential but also logistic and it's also the case in Europe Europe was probably her head when talking about corrections uh office markets have corrected not as dramatically as in the US but because you have less over Supply but we are in excess of 20% correction and some uh industrial have corrected by probably 20% residential being more resilient uh we are probably a little bit in excess of 10% but nevertheless correction have t has taken place so the big question is more have we reach the bottom and are we will we see the the the market restarting in the course of 2025 I think that's what we expect and uh maybe uh this will allow us to reach the big numbers you have just mentioned but the question is more have we reached the bottom probably yes of course there is always nuances depend on the subet class but I think that's where we are very interesting Isabelle and I think it it truly makes sense because during Co we we really hit a rock bottom so it it cannot keep soaring up let's let's say Bruno I wanted to move to you and Bruno ladies and gentlemen is the founder of the Smart City index um at CNN we personally love this index every all of our audience everybody sees it they try to look for their City their country see where it's at in that uh listing so the ranking is characterized by high degree uh of of stability Abu Dhabi came in at number 10 Dubai came in at number 12 and there were several European cities as well as Asian can you tell us about the metrics uh that you used to choose uh smart cities for the index and what do you look for in the top 10 cities yes thank you uh good morning everybody the um the Smart City index has been in existence for 5 years now so we start to have time series and look at Trends and Trends matter more than instant snaps that uh the index tell us being 10th or being 12 doesn't make a big difference uh but remaining in the top 10 for five years means something this is what we we want to look at this smart City index is actually part of a bigger family that I've been developing for the last uh 20 five years uh with the global index on technology the global index on Innovation the one on talent and later on the future Readiness index and the city index is a very special role uh in that family because and this is where I come to your point about the metrics it is entirely based on surveys uh the other four are based on hard data the reason is that until very recently no reliable and comparable international data was available about cities uh we would go typically to real estate companies we would go to the people who are active in the cities to get a feeling of what is working what is not working where the challenges are this situation is changing a number of global organization uh have started to gather reliable data on cities so we are on the verge of seeing something different in a metrics in the years to come but one point will remain at the core of what this uh new metrics are which is that we have to move away from a technology Centric definition of smart cities we are seeing the backlash uh of that we need what I call a positive definition of smart cities and in positive the P is for people Centric so what we try to do with the index is to identify the issues and see whether the solutions brought by city leaders but also by investors match the expectation of citizens this is the philosophy of what we try to do yeah and I think it ties in discussing a correction already happening smart cities these are investors that are looking at these sort of metrics to figure out whether to invest or not so Rando I wanted to move to you why do you believe now is a good time or not a good time to invest in the real estate market and where can investors seek resilient opportunities in your view well actually I'm going to make a a bold statement here uh which is well I strongly believe that you know we are the beginning of the new cycle um I strongly believe that you know we going to see the next couple of years uh you know one of the best possible vintage when it comes to real estate and this is really for the foll re reason right you know let me start from the the the market reset right the value reset we had you know too tough here right when it comes to where the value has gone and you know Isabel mentioned that you know we have seen value coming in 25 30% on average of course off is much more for all the reason that we know this is actually a very good entry point when it comes to the historical level right of this Market we got the cost of capital which is actually you know coming in it's decreasing and what we are seeing right in place like Europe and us is coming up as well the financing is now becoming a creative again which basic basically means that you know the old transaction volume right it's going to be unlocked you know by the financing side which of course very important for Real Estate um we also have you know uh the liquidity right which is coming back right you know we have seen and I guess Isabel can share this last quarter this year uh you know we are actually ending you know this quarter you know the transaction volume in our organization and we do you know quite a lot of you know deals you know during the year the transaction volum has increased you know pretty dramatically right you know this on this quarter which basically means not only financing but also the equity is coming back and last but not least which is a very important point the market fundamentals I would say with the exception of the office sector depending where you are in the office sector the market fundaments are very strong demanded Supply are in check you got this Major Force which are driving a secular demand story demographic digitalization which are really creating an environment whereby you know to the question how you g to make money into this new cycle right this is not going to be a Cate compression story as we have seen in the previous cycle like capital appreciation driven by you know the cost of capital coming in this is going to be an income story it's going to be an income growth story and also very important we're back to you know the traditional uh stock selection Market selection which which matters again in the previous cycle it was really an asset class selection right you know you pick logistic logistic everywhere made money now you got to be much more careful in terms of you know country City sub market and being able to really you know pick you know the right asset obviously a positive view by Rondo here but Isabelle I wanted your opinion on what trends do you currently see shaping the global property market and what strategies is your firm employing to capitalize on opportunities to invest in the global property market and randoo feel free to jump in as well after as well yeah so I think this has been mentioned in the previous panel David H was saying that uh diversification matters I think it's true when looking at alternative asset to diversify uh liquid asset it's through when within alternative to embrace the entire Spectrum credit has been a big push but it's also through when looking at just the real estate uh investment the real estate portfolio if I look at the peak of the market offices represented 30% of our portfolio uh and I don't think it's the end of offices we are we are not retrenching from this sector but having been able to diversify and embracing the new trends or new trends uh has been critical so looking now what is ahead of us I think residential will continue to remain a very interesting Trend because yes it's sometimes used as low return but low return low risk and I think presidential as demonstrated uh as yes demonstrated what he was promising so uh this very resilient uh uh cash flow uh capability to generate very good income within the residential sector you have some sub sector that are also very interesting like student accommodation this is one of our strong bets and it will continue to be one um logistic uh yes I agree that it has been one of the big Trend it will continue to be one notably in Europe where there is still some under Supply but we will have to be diligent on and cherry picking um but you have also other uh trends that continue to be there data center have been one a very big one we have Diversified in data center we've sold our data center platform last year generating very big returns and I think the when looking at this what I think one of the new trend is that real estate is becoming more and more infrastructure is becoming more and more private Equity so at the end the lines are blown ing between those sub asset classes I think that's something that will yeah looking at it leveraging on this will be a way to generate uh more return and yes being able not to just have pure real estate but operated real estate where we can uh unlock this uh grow potential and this cash flow very interesting opinion indeed now we spoken about opportunities and Trends but I want to speak about the challenges as well and Bruno I wanted to ask you taking a global view as we have been what key challenges do you see uh for Real Estate let's say in the next 5 to 10 years in your opinion the uh you know economists are very good at explaining in five years the mistakes they made two years before um so I try like rundo to be bold here uh I see three major trends that uh are going definitely to affect the real estate market the first one is demography uh clearly by 2050 a little Beyond this 5year Horizon um we are going to see 80% of the world population living in cities this means three more billion people to be accommodated in cities what is the kind of residential uh working spaces that you're going to need for that um city leaders are trying to think in terms of uh mixed environment shared spaces creating Innovation hubs for instance which have immediate uh consequences on design on Urban policies but also on Mobility with uh a great and important real estate component that's the first Trend demography uh the second one is um about uh geopolitical uncertainties um the uh we see a collapse of multilateral disciplines we see a rise in protectionism under different names uh you hear near Shoring FR Shoring these are just code names for protectionism uh the um consequences for that would be uh lower uh Collective growth rates but also lower mobility of certain number of factors of production and this has direct implication on what kind of assets you want to maintain at a particular point of your geography and uh the movement right now is one in which a large number of companies and investors want to move away from physical assets to maintain their ability to be Mobile in this uncertain environment I uh see an implication of that which relates to the point that uh uh both my fellow panelists were just making in terms of how do you want to segment your own market and I believe but I may be wrong and I would be uh like to hear your points of views on the fact that real estate like other Industries may start thinking less and less in terms of national territories and operating spaces and more and more on local uh policies and conditions uh fiscal Dimension being one of them and the third Trend uh has to do with technology uh there's a lot of talk and excitement around AI uh as they say in Texas I believe that you ain't seen nothing yet and that the real Revolution will come when uh Quantum Computing and AI meet and this will have immediate consequences on financial instruments in particular cryptocurrencies it will have major consequences on dollarization of the economy and this indeed will become part of the real estate equation this for me demography uh uncertainty and Technology are the key trends yeah I'm glad you touched on AI Remo I was going to I was going to come to you on that AI is a very important part of our topic and Rondo actually has done a PhD in AI over 30 years ago 30 years ago yeah focused on the contribution of AI to real estate Innovation so that's that's uh very impressive so what I wanted to ask you in that um area is how has that uh contribution changed over the years in your experience since you have been you know an expert on this 30 years ago well actually I well thank you for asking this I mean it you know it makes me going back to 30 years ago when I had you know last gray a I guess which was a nice time so I guess uh you know the the best way to start with is well I remember I perfectly remember you know some sort of endless discussion you know with the you know my friends at Harvard University where you know we were really comparing you know the the non the the parametric model right you know regression model with the nonparametric model which is the new network and the room was divided right I'm talking about 30 years ago real estate was very unsophisticated asset class we still unsophisticated to some extent so that was the room was divided you know Alpha the room was like well I got you know the story when it comes to the power of this non-arabic model but of course you know I don't buy into you know the fact that you know there's not enough data which can be used for this and the other room that did not believe that you know this going to be applicable right you know to a real asset class so that was um you know that was the story there fast foring 30 years later there are two major changes which everyone understand first of all we have an availability of data uh which is you know enormous I would say we have quality of data right in many cases and of course we have much more computational power you can run your network with billions of parameter right and interesting enough when you look at the algorithm right which is behind all these you know big model lmm Etc the nature of this algorithm is not really change dramatically it's really you know the data and uh and of course the computational power we as a PM we're investing into this we launch our Innovation lab an year ago we're building an ecosystem of partnership you know University tech companies because we strongly believe that you know the direction of travel is the following and it's a very very easy way to understand how this is going to generate value in the real estate first of all as Isabel was mentioning real estate is becoming an operating asset class we the future of the Real Estate Investors is not being the landlord providing the walls right you know to the user of this building but we need to provide service and you can easily imagine that you know in this operational uh story you know data driven right algorith that can create value which for us means improving operational efficiency improving noi improving value easy value proposition um another value proposition is really connected to the decarbonization story right you know we pretty much understand that you know the directional travel is set decarbonization for real estate for the most part means we going to have you know uh buildings which going to be much more efficient energy efficient what that means for the real estate again better noi story better value so there is an immediate translation right on why this Tech enabl right uh real estate will drive you know value and that's why we're very much interested and that's why actually we launch our Innovation love and speaking of uh Tech Innovation and blurring the lines as you mentioned Isabelle um axi IM am sold data for it's one of Europe's largest uh data center platforms last year why did your company decide to invest in it in the first place and how did it benefit the different assets under your management we decided to invest a long time ago uh close to 10 years ago you know because we we saw this uh this trend the need for more data and now that is exploding with artificial intelligence and so that and we have leverage on our combined expertise on both infrastructure understanding power and understanding also development because this is a platform we have grown significantly and but we also take took advantage of the very attractive pricing we have been able to catch and generating very high returns so I think that's what is ahead of us identifying those Trends but also being able to crystallize value when the opportunity is uh is is coming um unfortunately we're out of time but I think we've identified future Trends I think in general we can agree and as this panel that it's a positive Outlook and um let's wait and see ladies and Gentlemen please give it up for our panelists and this very insightful discussion thank you [Music]