Around Europe in one and a half days

We are celebrating a milestone at the Kempen Property Team: the 2017 conference will be the 10th edition of the European Property Seminar in NYC! But this is far from the only reason why 2017 is a special year. We have heard the expression "unchartered territory" many a time before, especially when relating to the ultra low (and sometimes negative) interest rate policy pursued by all the major Central Banks. As the policy became increasingly more accommodative, we started getting more comfortable with the new reality and rather started considering the beginning of the unwinding of said policies as the real uncharted territory. And this is exactly where we are in 2017: after years of QE and declining rates, the US have started hiking rates, while speculation on the UK following suit has been rife and only delayed by the uncertainty around Brexit. If the period post crisis has been benign to all sectors, it has been even more beneficial to real estate.

The STOXX Europe 600 Real Estate outperformed the general index by 170bps annually the past five years. The ever declining interest costs have benefitted the companies in more ways than one: EPS has been boosted even in an environment of subdued growth thanks to lower financing costs, while the yield spread vs bonds made the asset class extra enticing for investor in need of income. In the meantime, the system was awash with liquidity, pushing yields lower as aggressively bid assets exchanged hands, buoying capital values. But that was then, and this is now.

With this period now largely behind us and with political uncertainty aplenty, what is in store for 2017? What we know is that this period of central bank meddling resulted in an extremely high correlation of property stocks and general equity. Since 2005 property stocks behaved like equities (average 0.81 correlation). But this correlation has come down significantly to 0.46 early this year, and comparing NAV's to share prices tells us, that in the long term, property stocks behave like property. So after this time of macro driven plays, 2017 seems like the year when it makes sense to look at the fundamentals of the underlying markets once again. 

In the end, real estate remains a local business built around a tightly knit community. It is local because what drives returns is income and in order to get that, quality of the assets and management are key. And quality is determined at the micro level, which means, you have to be as close to the action as you can. Because we know travelling to Europe might not always be possible, our Real Estate conference allows you to tour Europe in a day and a half. Also, not only is real estate a long term asset class, but people tend to stick around for a long time: looking back to our first conference in the Carlyle 10 years ago, you would be surprised to see how many of you we will be meeting up with again next week - both on the corporate and on the investor side. Real Estate is at the heart of what we do at Kempen, and like real estate, we are in it for the long run.

This article was originally posted on LinkedIn. 

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