This is the premiere European property exhibition and is attended by over 18 000 delegates and 3 500 exhibitors from Europe, USA and the East. Henri Alster, President of American European, Inc opened up by saying “a few years ago the property market was booming.
In fact it was a real challenge to make a bad investment. Now with the low growth in the European economy, the state of the banking industry which is severely impacting on financing and the ever increasing customer needs, property as an investment opportunity is under severe pressure.”
These sentiments were echoed by Dr Karsten von Koller, member of the Board, Rheinhyp Rheinische Hypothekenbank AG (based in Germany) who said “banks were looking at taking a greater equity stake whist not compromising the return. Risk adjusted margins would be far more prevalent in the forthcoming year.
The loan to value, profile of the investment, maturity of the loan and margins were all being carefully reviewed. Syndications were not flexible enough. Banks were looking for greater individual funding to be placed in the investments.”
The view in the USA from Michael Pralle President and CEO, GE Real Estate in the USA was that Los Angeles was showing vacancies of between 10 and 15%.
Rents have declined substantially in some areas as much as 40%. Landlords were offering up to 6 months rent free periods and substantial concessions. However even with these factors there was still an enormous amount of money chasing property deals. High profile tenants with long-term leases still commanded some extraordinary cap rates.
With the pending rise in interest rates there needed to be a more focused view, as low interest rates tended to forgive the mistakes. There were two situations likely to give rise to interest rates, the large deficit spending taking place in the US and the rise in the price of oil. In fact history has shown that a rise in oil prices above 50% was in all instances linked to a recession.
When questioned about the impact of the looming war, Michael said ”in all circumstances uncertainty affected markets, and any form of prolonged uncertainty would cause a slowing down of investment activity.”
Asia was not immune to these uncertainties, said Dr Ngee Seek, President, GIC Real Estate in Singapore, however the medium to long-term prospects were good. It was however difficult to make a general observation about Asia as it was so diverse.
Japan was going through a difficult transition period, and because it was such a rich country it could afford to take over 10 years to resolve. China on the other hand is like the bright spot…the only engine running. It does have its own set of problems, as whilst it is very competitive, experience has shown it can be difficult to do business there.
Interest was high especially with manufacturing organisations. But like any high interest area, when everyone starts to get involved the market tends to overshoot. China was also characterised by a lack of readily available, qualitative and comparative information. Thailand and Malaysia are both moving along well, but the Philippines and Indonesia have a lot of structural instabilities.
Is Germany about to become the next Japan? “Unlikely” said Dr Koller, who advised that politics and the financial industry are not so intertwined. He said we could expect to see a major restructuring in organisations which are in trouble. With 4.5million unemployed individuals Germany was split into two different worlds.
“This is not unlike South African markets”, said Lynette Finlay, Managing Director of Finlay & Associates. “The kind of pressures the international markets are facing have been echoed in the South African industry for several years.
With the exception of the war, which is unlikely to have an impact on the market, South African property industry has been plagued with high vacancies, and as is currently the case in the USA, rental bubbles of past leases have now burst.
Asset values will need to be written down to address this. Property owners must become needs driven and competitive. Oversupply only serves to erode the returns. In a high inflationary environment with interest rates possibly on the rise investors will need to show caution and responsible investing”.
The global outlook for 2003 is not completely bleak, organisations will be forced to remove non core items from their balance sheets which will present major opportunities for property investors. But word from the global markets is caution, and conservatism, analyse risks carefully and watch for rising interest rates.
South Africa was well represented at Mipim, lead by TISA, a division of the Department of Trade and Industry, some 18 organisations were represented including Blue IQ, Victoria and Alfred Waterfront, Johannesburg Development Agency, Century City, Finlay & Associates, Heico property solutions and Viruly Consulting. There were in total some 60 South African delegates at Mipim 2003.
Pauline Larsen, Director of Viruly consulting, said “The benefit of Mipim is that it offers a wealth of new thinking, case studies and innovative approaches to various property questions, and allows us to source information that can be brought home, tailored for local market conditions and applied in the South Africa marketplace.
It also offers a unique opportunity to benchmark market trends against global dynamics, and assess the competitive advantages of the South African property sector against this backdrop.”
Brian Kirchmann CEO of Sapoa, said “ if our only objective at Mipim was to create an awareness and attract participants to our stand then I believe we were very successful. It now of course depends on how those contacts may be turned into deals.
There was certainly a great improvement compared to our first year at Mipim, which was 2002, and clearly it will keep on improving in the years ahead. As the saying goes Rome was not built in a day and it certainly requires us to participate in Mipim to enjoy the full effectiveness of this global commercial property networking forum.
It was gratifying to see some major players from our industry in and around our stand, and I am sure given the success of this year we will attract more of those players in the years to come. In addition we had a meaningful cross section of players, from all walks of life in our industry which I am sure created the correct impression for all the delegates who came into contact with the participants on the South African stand.
In conclusion I would like to thank the Department of Trade and Industry and especially the Trade and Investment South Africa division for their generous support and allowing us to showcase the international competitiveness of our developments in South Africa.”
Ken Forbes, a director of Moreland, said “South Africa definitely needs to be represented at MIPIM, it will take time for the European investor to build up confidence to invest on a large scale in South Africa. Mipim is more about the promotion of South Africa than individual provinces and projects”
Graham Price of Coega Development Corporation felt the exhibition was very useful in that it allowed South African companies to showcase themselves in an international environment. Investment promotion is an activity that many world cities and regions do in a professional manner, and it was useful to see the level these destinations present themselves at.
It was also an excellent opportunity to start contact with potential partners and investors, but as with all exhibitions, results are directly dependent on the amount of energy expended.
Tony Bales, head of sales and marketing, of Century City, said “Mipim is an excellent place in which to raise the awareness for both South Africa and ones individual projects.
Unfortunately South Africa is at a very early stage of marketing itself internationally and hence one has to cover many aspects of marketing a country in general, before one gets onto ones own project.
I believe Mipim should be seen as a long term project by all major South African property companies and the benefits will be seen in time to come. South Africa has a very sophisticated property market and we need to position ourselves internationally and market our international competitiveness''.