MIPIM: Sovereign wealth and pension funds debate future of asset class; Investors recognize need to treat tenants as customers


About 60 representatives of institutional investors came together at the MIPIM RE-Invest summit in Cannes, France on Tuesday to discuss the future of commercial real estate.

Topics touched on at the 30th edition of MIPIM centred around deals, pricing, e-commerce, climate change, new ways of living and how real estate should adapt as well as environmental, social and governance (ESG).

Hosted by Peter Woodward, co-founder and director of Quest Associates, a live poll by 52 of the representatives of institutional investors revealed that 54% had some awareness and were familiar with the UN Sustainable Development Goals agreed in 2015; 31% were not at all familiar and 15% were very familiar.

Pertti Vanhanen, the global co-head of real estate at Aberdeen Standard Investments, who moderated a roundtable discussion, summarised and said investors recognised ESG as a “benefit rather than a cost” and were at “different stages” of implemention.

Following discussions on residential investments, Edmund Craston, the head of fund management at Patrizia, said all investors were interested in residential as an asset class, but the lack of available assets was pushing investors to adopt varied approaches and strategies.

Residential-for-rent asset class attractive

The poll at the event revealed that 66% of investors see residential-for-rent as an asset class that has the highest priority in terms of increasing investment exposure in 2019 and 2020.

Retirement and data centres each polled 11% with student accommodation and hospitality assets polling in 8% and 5%, respectively.

Craston said social housing was also being considered in a “meaningful way”.

Ciaran Carvalho, head of real estate at CMS, moderated a discussion on logistics, retail and e-commerce, and said last-mile logistics was seen as important but challenging to achieve in city centres due in part to a shortage of assets.

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Carvalho said the panel agreed that drones were notgoing to be a major part of logistics’ delivery mode as a result of issues associated with security but added that they would still have a part to play and could be valuable in certain circumstances like delivering medical supplies to remote areas.

Responding to the poll question on whether the logistics property sector is overheating, 56% of investors said yes.

Andy Pyle, the head of UK real estate at KPMG, said the assumption that real estate is immune to disruption is wrong.

His panel’s discussion was on what new skills and experience real estate investors will need to employ, and there was a recognition for the need for more entrepreneurial and creative people.

Data and analytics important for future success

A poll showed that data and analytics was the most important (44%) skill for real estate companies and investors in order to position themselves for future success; 30% believed lifelong learning and adaptability was the most important; branding and customer experience was voted for by 19%, while change management gained 7%.

No one voted for artificial intelligence as the “most important” skill for real estate companies and investors in order to position themselves for future success.

Andra Ghent, an associate professor at University of Wisconsin-Madison, moderated a panel to discuss the future of office property.

Ghent said in future the office sector will be focused on access to high-value tenants and where they want to be, adding that co-working offices and space was likely to become a complementary product.

Treat tenants as customers

Institutional investors recognise they must treat real estate tenants as “customers” or risk diminishing their returns, it was revealed today at a closed-door investor summit at MIPIM today.

A live poll of 53 representatives of sovereign wealth funds, pension funds and other institutional investors found that 58% strongly agreed that a focus on customer experience in buildings will be critical to achieving successful investment outcomes over the next five years. Another 40% agreed and the remaining 2% were not sure.

Andy Pyle, the head of UK real estate at KPMG, told delegates at the annual RE-Invest summit in Cannes, France, that understanding the commercial real estate customer and giving them more of what they want will improve user experience and increase returns for investors.

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He said traditional leases were evolving to give customers a different experience and accommodate changing needs, such as flexible working environments.

Data provided by Pyle showed that brands that improve customer experiences see revenue increase as much as 10% to 15% while also lowering costs by 15% to 20%.

“Economic value is lost when experience fails to meet expectations resulting in missed revenue and increased costs,” Pyle said.

On the upside, economic value is maximised when customer expectations and experience are in alignment, he said.

In order to benefit from the increasing returns, organisations need to consider what shapes and defines today’s customer purchasing and experience requirements by knowing, for example, what drives consumer behaviours and expectations, and understanding the trade-offs customers make.

Organisations that consider customer’s purchasing and experience requirements have proven to yield “enhanced outcomes, grow quicker and deliver shareholder value,” Pyle said.

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Pyle said commercial real estate will have to mimic the hospitality franchise model and focus on becoming more customer-centric.

It will need to mine data to understand how buildings are used and what customers want most from their working experience, he said.

The industry should also maintain brand consistency and ensure every building delivers a unique look, feel and expectation.

Source: IPE Real Estate

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