The SIOR European Conference that just occurred in Warsaw, Poland was a wonderful opportunity to learn from and network with some of the most experienced CRE professionals in the world. Over the three day period, attendees shared professional and personal opinions about what SIORs do best: make deals.
The conference was keynoted by Professor Richard Baldwin, a leading expert on the influence of the Internet and communications technology on trade and production. Industries arbitrage labor, capital, and technology across national boundaries to find the best profitable balance. New technologies (for example, tele-presence) will make physical collaboration possible while being thousands of miles apart.
After attending and participating in all of the sessions for office, industrial, investment, and leadership, I learned that dealing in Europe is not much different than in the United States. Cap Rates have the same relative spreads from primary markets to secondary, at below 5% in Paris, Madrid and Germany, then rising in Central Europe until reaching Moscow at above 10%. In many of the strongest markets, it is essential to add value to overcome low returns.
Logistics and supply chain closely resemble the United States by building to scale and establishing large e-commerce buildings that supply last mile destinations and production components. Development opportunities are similar where land is controlled long-term and obtaining occupiers for new construction creates the value. Retail has been permanently disrupted.
Political risk, something the Europeans know much better than Americans, was an important aspect behind many of the discussions. Due to almost universal transparency throughout Europe, political risk has so far been muted; however, there is still a premium that can be earned by having the right partners and keeping a fixed investment mostly in the land. Corporate credits and a robust occupier market contributes to stability. A strong dollar provides purchasing power up to discounts of 25 to 50 percent.
As in the United States, access to labor is a primary factor in location decisions in Europe. There is currently a mismatch between capital and labor, as capital prefers major markets, while industry wants to locate further out where labor availability exists and wages are lower. This is another opportunity for private capital to earn a calculated premium.
It’s the close personal relationships we have with our international SIOR colleagues that will overcome investment and location risks. As our clients enter the next phase of global convergence, more frequent communication with our SIOR peers will be the source of many deals.
The entire European Chapter and Organizing Committee deserve our praise by recognizing the importance of global knowledge for our individual business practices.