By the shimmering blue-green Mediterranean, they gather each spring in Cannes, France, seeking deals, the latest in worldwide commercial real estate trends and, let's not forget, a good time. The 2001 edition of the Marche International des Professionnels de I'Immobilier (MIPIM), the international commercial real estate conference, was no different, drawing 15,000 attendees from around the globe, the largest attendance ever.
Deals were closed over dinner in hilltop villas overlooking the ocean. Real estate pros schmoozed their counterparts and mined for prospects aboard yachts moored in Cannes' harbor and, of course, champagne flowed freely.
In a discussion on technology's impact on commercial real estate, Tim Caiger, Oracle's vice president of real estate for Europe and Africa, said his company prefers short-term leases, often not more than five years. In the early 1990s, an economic downturn nearly crippled Oracle after the company leased or purchased drastically more space than it needed, thinking it had to double its real estate requirement to meet anticipated growth, Caiger said. Since then, the company has shed office space and plans to sublease even more this year.
“We're trying to buy the maximum flexibility we can get,” Caiger said. “You sign a lease for more than a year, and it creates problems.”
Flexibility of another kind, telecommuting, was also an issue. Even though telecommuters may miss the camaraderie of the office, employees still must have the option. Besides, most high-tech workers are equipped to plug in virtually anywhere.
“What you'll need is an office at home when you need it, and an office down the street when you need it,” said Mark Dixon, CEO of London-based Regus Business Centers.
The Ritz for $40 a night?
In a session on global hotel markets, Robert Hecker, managing director at Howarth Asia Pacific, Singapore, revealed the good, the bad and the ugly aspects of the Asian and Pacific Rim hotel markets.
Tokyo topped the list of hot hotel markets with a 75% occupancy rate and $200 average daily rate (ADR). With 80% occupancy, Seoul's hotel market followed closely behind with a bullet, as the South Korean capital expects double-digit percentage ADR increases in anticipation of the 2002 World Cup's arrival. Hong Kong also received a favorable forecast, as did Singapore, with its recent decline in net space due to a number of hotel redevelopments into residential space.
Beijing, Shanghai and Sydney were a little cloudy, with a great deal of either new or planned hotel rooms. While Sydney added about 3,000 new rooms for last year's Summer Olympics, the Australian economy tends to rebound faster than many others, Hecker said, adding that it might be a good time to invest in Sydney while the market is down. Bangkok also received a partly cloudy forecast due to oversupply and devaluation of the baht.
The downright ugly: Ho Chi Minh City, Vietnam; Jakarta, Indonesia; Manila, Philippines; and Kuala Lumpur, Malaysia. Kuala Lumpur and Ho Chi Minh City have ADRs of $30 to $50 for five-star hotels due to oversupply and weak currencies. Political and religious turmoil in Indonesia and The Philippines make Jakarta and Manila less than favorable investment markets.
More tech lessons learned
Some high-tech applications and gadgets are now integral to most real estate pros' lives. The throngs of people talking on mobile phones or toying with personal data assistants (PDAs) and Blackberries outside the Palais in Cannes served as a prime example. Still, many organizations are hesitant to fully embrace Internet-based applications for a number of reasons, among them a feeling that many companies aren't confident that such high-tech systems are able to deliver the goods.
“Customer adoption is the biggest issue, and everybody thought it would be a lot quicker,” said Jeffrey Kaplan, managing principal for Europe for New York-based Westbrook Partners. “A year ago, venture capitalists, ourselves included, told people to spend money like drunken sailors. Today that's reverted to ‘keep it simple, stupid.’”
Chicago-based Equity Office Properties (EOP) keeps one of its quite large toes in the tech pool, and has a double-edged tech strategy. As perhaps the world's largest office owner, EOP has invested in a number of projects and high-tech firms that can streamline EOP's processes. Also, Equity Office looks at partners that can provide tenants with both high- and low-tech solutions, from broadband and outsourced information technology, to insurance and movers.
The tech-market meltdown of late 2000 and 2001 actually has helped Equity Office weed through and eliminate some of the chaff, said David Helfand, executive vice president at EOP. Realizing one's weaknesses can be as valuable as realizing one's strengths.
“We recognized that we don't have the [venture capitalists'] skill sets,” Helfand said. “But we do need to stay close to the forward edge of technology to better serve our tenants.”
Whether the game is e-procurement, listings or finance, Kaplan doesn't see an e-real estate firm setting an across-the-board standard.
“I don't think any one [Internet] company can become a standard even in a relatively narrow niche,” Kaplan said. “The companies that will be successful can look at EOP and save it money by streamlining processes and provide savings for Joe Developer with one office building through bulk purchasing. I don't think anybody's doing both correctly.”
Property managers can whittle away at inefficiencies by taking relatively small steps such as using beepers, Blackberries and other PDAs, Kaplan said.
One million empty apartments
Again and again, affordable housing was the topic du jour for an international panel discussing urban planning and growth.
Like every other major international city, London is becoming prohibitively expensive for most working- and middle-class families. Making the situation even more dire, the British government has decreased funding for affordable housing, said Sir Stuart Lipton, CEO of developer Stanhope Properties and chairman of the London Architectural Commission.
“We're moving forward toward a situation where office and retail [developers] may have to [contribute] on some of the financing for affordable housing,” Lipton said.
Old European cities especially need thorough and creative urban planning, Lipton said. Even though London is fraught with debate over building heights, higher densities are a must, and tax incentives for redevelopment of brownfields probably will be necessary as well, he said. Open spaces and signature projects — such as the Guggenheim Museum in Bilbao, Spain — that can change a city's economic and cultural climate also must be considered.
“There's no other way. It's not an option,” Lipton said of thorough urban planning.
Berlin and the former East Germany face slightly different problems. Berlin itself has 100,000 empty flats, while Eastern Germany has about 1 million vacant apartment units, said Peter Strieder, senator for Berlin's Department of Urban Development.
East Germany's communist regime built the majority of the vacant units. High vacancies are a result of poor quality and a western migration to Germany's job and population centers in the West. While the German government plans to demolish many of the vacant buildings outside Berlin in the eastern part of the country, Berlin's vacancies can be used as a driving force to help attract people back to the city, Strieder said.
Berlin was destroyed twice in the past century, first by World War II and then by car-oriented planning, Strieder said. The German government now anticipates spending about $225 million to revitalize the Berlin CBD with mixed-use, mass-transit-oriented development.
Because the city was divided for more than 40 years, Berlin's suburbs never developed like suburbs in the United States and other Western European countries. Therefore, reviving the city's core is less difficult in Berlin than in many U.S. and Western European cities, and a revitalized Berlin is one of the keys to a prosperous Germany, Strieder said.
“The big cities are the heart of our nations,” Strieder concluded, “and incubators of economic and social progress.”
NREI Associate Editor Bailey Webb thoroughly enjoyed MIPIM 2001.
2001 MIPIM Award Winners
Special Jury Award:
Christianbro, Unibank's new headquarters complex in Copenhagen, Denmark.
Architect Henning Larsen designed the project for ATP Ejendomme.
Sevens, Dusseldorf, Germany.
Designed by RKW for Deutsche Telekom Immobilien and Westproject.
Les Patios, 10 place du Capitole, Toulouse, France.
Designed by Hertenberger Vitry and Roger Pages for OGIC
Aux Classes Labourieuses, Paris.
Designed by Frederic Jung for Sari Development.
Four Seasons Hotel, Prague, Czech Republic.
Designed by Dum a Mesto and Loxia or FS Hotel.