GlobalSPRING 2018 £5.70 investor guide

A NEW DAWN FOR THE CBD The up-and-coming city districts rivalling traditional business hubs around the world

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AN Exclusive: Top 100 Destination known Off the wall The globe’s biggest Where to splash the cash; The founders of the world’s property owners a sector-by-sector guide biggest proptech fund PUBLICATION Build it, buy it, sell it.

Real estate has never been more global or more complex than it is today. We understand that it is a critical part of your business, regardless of where in the world you operate. In a fast changing global market, we have been at the forefront in helping our clients navigate and redefine the most complex and high-profile real estate deals. From real estate investments, developments and how to finance them, to places to work and live. Whether you are looking at offices, retail, industrial, logistics, hotels, residential, or any other type of building, we can help. With over 500 lawyers in our global Real Estate Industry Sector Group, we use our deep insight of real assets to help our clients across the entire property lifecycle. Everything from fund raising to joint ventures, acquisitions and disposals, development, financing, restructuring and disputes. We have experience in working with virtually every aspect and type of real estate project.

2,500 lawyers / 45+ offices / 25+ countries www.hoganlovells.com

Hogan Lovells is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. Images of people may feature current or former lawyers and employees at Hogan Lovells or models not connected with the firm. www.hoganlovells.com © Hogan Lovells 2018. All rights reserved. CONTENTS I GLOBAL INVESTOR GUIDE

Emily Wright, editor A truly global economy

Once upon a time, if investors wanted to splash their cash in the financial heart of a global city, there was only one option; head straight to the central business district. These gleaming hubs of commerce were long considered the fiscal powerhouses on which the rest of the city, and in some cases entire countries, relied. Then in 2008 the bottom fell out of the global economy. As the financial services sector bore the brunt of the pain, a period of innovation ensued. This fuelled exponential growth in tech, creating a global industry and a new, powerful breed of occupier. And these new occupiers aren’t interested in basing themselves out of high-rise offices in traditional financial districts. They want the sort of flair and heritage that is

REX/SHUTTERSTOCK more commonly associated with fringe locations. And that’s where they have Top 100 global investors moved. Far from resulting in the death Chinese investors have become a force to be reckoned with in real estate, toppling several of the CBD, this shift has created a long-standing investors from their perches in EG’s annual list page 16 swathe of new business hubs; just not the ones investors are necessarily familiar with. From Shoreditch in London to Oakland in California and HIGHLIGHTS Williamsburg in New York, turn to page 32 for our guide to the alternative, and potentially most lucrative, new financial hubs around the world. Also in this issue we reveal the biggest spenders in real estate in our annual Top 100 Global Investor ranking (p16-19), delve into the recovery of the once-beleaguered Spanish market Prime locations Y viva España! (p38-41)and meet the ex-Blackstone Amazon’s need for a second headquarters The Iberian peninsula is well on the way to duo behind the world’s biggest has prompted fierce competition page 28 recovering from its financial slump page 38 dedicated proptech fund (p50-53).

CONTENTS AT A GLANCE Spending patters A new dawn for CBDs Off the wall Capital flows tracked around the world page 6 The fringe districts attracting a fresh breed Get to know Brad Greiwe and Brendan of occupier page 32 Wallace, founders of proptech fund Fifth Wall Star attractions page 50 Where to invest your money in 2018 page 12 The buying game Will international retailers’ latest push into India Prime design REIT around the world be more successful than before? page 42 NBBJ’s partner Ryan Mullenix explains the The growing popularity of global REITs page 20 responsibility that goes with innovation and Sowing seeds for growth foresight page 54 Insider knowledge Mapletree’s regional chief executive, Europe Industry experts tackle six burning questions and USA, Michael Smith outlines what’s next Trendsetter: Convene page 22 on its wish list page 46 Offices that come with hotel services page 58

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Spring 2018 3 GLOBAL LOCAL WORLD CLASS

Real estate decisions depend on accurate insights. We speak your language. savills.com KNOWLEDGE EXPERTISE ADVICE

Savills is a leading global real estate firm with more than 600 offices and over 35,000 professionals throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. We have dedicated investment teams in all major financial centres around the world including London, New York, Hong Kong, Frankfurt, Paris, Shanghai and Tokyo. Our global investment experts offer specialist advice on all aspects of investment sales and acquisitions to optimise returns and minimise risk for our clients. NEED TO KNOW I GLOBAL INVESTMENT ACROSS THE BORDER Savills’ data on international real estate investment reveals a big increase in capital flowing out of Asia Pacific and into Europe

$11bn

$47bn

North America $13bn

$1bn $3bn

Latin America

n 2017, $34bn more was invested in Europe from Asia Pacific than in Asia Pacific from Europe, and $9bn more was Iinvested from Asia Pacific into North America than vice versa. The lion’s share of global intra-regional investment last year was into Europe ($90bn) with $36bn into North America and $16.2bn into Asia Pacific. The preference for Europe and North America is largely due $20bn to their secure, liquid, transparent and established real estate markets, with their freehold assets offering secure legal title being particularly sought-after by new global investors This coincides with increasing demand for fixed-income and income-producing assets from aging populations in the developed world. Different assets are sought, changing the performance of sectors.

Spring 2018 6 $39bn

$5bn

Europe $0.2bn Asia Pacific

$4bn Middle East

WHO IS SPENDING CROSS-BORDER INVESTMENT IN 2017 WHAT AND WHERE AND HOW IT COMPARES WITH 2016 2017 2016 YoY change n North America NA - EUROPE $47bn $40bn 18% n Europe NA - APAC $11bn $17bn -35% n Middle East NA - LATAM $1bn $1bn 47% n APAC EUROPE - NA $13bn $16bn -14% EUROPE - APAC $5bn $4bn 26% APAC - EUROPE $39bn $20bn 93% APAC - NA $20bn $33bn -40% MID EAST $4bn $4bn 7% - EUROPE MID EAST - NA $3bn $9bn -72% MID EAST $200m $3bn -92% - APAC JUICE/REX/SHUTTERSTOCK

Spring 2018 7 NEED TO KNOW I GLOBAL INVESTMENT TOP TIPS FOR 2018 Your guide to the sectors and locations that hold the greatest promise for investment in the year ahead

Vancouver: co-working space Berlin: grade-A offices

Portland: mixed-use Madrid: grade-A offices

Seattle: grade-A offices Stockholm: grade-A offices

AMERICAS: TOP INVESTMENT PICKS EMEA: TOP INVESTMENT PICKS City Optimum investment area Investment rating City Optimum investment area Investment rating Vancouver Co-working space Value-add Berlin Grade-A offices Core Portland Mixed-use Core-plus Madrid Grade-A offices Core Seattle Grade-A offices Core Stockholm Grade-A offices Core San Francisco Grade-A offices Core Oslo Grade-A offices Core Los Angeles Residential Core Amsterdam Grade-A offices Core San Diego Grade-B offices Value-add Dublin Residential Core-plus Santiago Co-working space Alternative Hamburg Residential Core-plus Buenos Aires Co-working space Alternative Munich Residential Core-plus Chicago Logistics/Industrial Value-add Paris Residential Value-add Dallas Logistics/Industrial Core London Grade-B offices Core-plus Source: Savills Source: Savills

Spring 2018 8 real estate investment universe can expand. Growing middle class populations in Asia, for example, offer big opportunities but will only present well- matched risk in jurisdictions Yolande Barnes, head of where real estate title is robust Savills World Research and markets are transparent. Expansion is more likely to be Where will the real seen in new property types, estate money flow in sectors and neighbourhoods in existing markets. Most of the 2018 and beyond? Savills tipsters see potential, and growing demand, for these Real estate has taken on the role hitherto “alternative” asset of stable income provision. In classes. countries where there is political Alternative investors are not instability or fiscal uncertainty, in necessarily heading up the risk particular, investors may even curve. Many will focus on quality consider real estate to be higher and prime investments in new grade than government bonds. asset classes, rather than moving Conventional investment into secondary and tertiary Seoul: grade-A offices opportunities are limited as properties in conventional asset supply has largely not kept pace classes. with demand. But, for those The effects of e-commerce, investors willing to consider new technologies and AI are the something new, more first rumbles of the potential for opportunities will open up in real estate disruption altering the 2018 and beyond. Savills’ nature of risk. Very different asset researchers around the world classes may be featured as “core” have picked out a few of the tips in future and 20-year-old sectors and locations which they assets which would have been think will perform and placed “core” are now appearing in the different levels of risk on these “opportunistic” and “value add” recommendations. categories. 2018 will be an Some world property interesting year for world real markets have very different estate, with investors needing to Shanghai: retail legal systems than those to carefully consider how to make which many global investors are rational moves into new accustomed. Without change, successful asset classes in a time there is a limit to how much the of change and disruption.

Beijing: retail

APAC: TOP INVESTMENT PICKS City Optimum investment area Investment rating Seoul Grade-A offices Core Shanghai Retail Core Beijing Retail Core Shenzhen Retail Core Perth Grade-A offices Core-plus Adelaide Grade-A offices Core-plus Brisbane Grade-A offices Core-plus Ho Chi Min Grade-A offices Core-plus Hanoi Grade-A offices Core-plus Singapore Mixed-use Value-add Source: Savills ALL PHOTOS: REX/SHUTTERSTOCK PHOTOS: ALL

Spring 2018 9 4.7 MILLION SQ FT / OFFICE /

London’s Unmissable Commercial Opportunity

London has always been a city where business thrives. But in a city where finding the right commercial property is becoming increasingly difficult, ABP Royal Albert Dock is offering something unique. Grade A flexible office space available at costs up to 50% less than Central London.

This high profile location is close to London City Airport and the ExCeL International Exhibition Centre with a Crossrail Station opening in 2018. The 35 acre mixed use scheme will comprise waterfront offices, cafés and restaurants, a bustling business main street suitable for major enterprises and SME’s, high quality retail space and public open squares.

ABP Royal Albert Dock has tremendous international connectivity and is a fantastic place to live, work and enjoy.

ENQUIRIES

SAVILLS LONDON ABP LONDON Piers Nickalls Patrick Hurley Director Senior Sales & Leasing Manager +44 (0) 20 7409 8704 +44 (0)20 3818 8540 [email protected] [email protected]

LONDON IS GETTING A NEW BUSINESS HEART

www.newbusinessheart.london

@ABP_London RESIDENTIAL / RETAIL / LEISURE

We’re Hiring Head of Leasing

BE PART OF THE ABP LONDON ROYAL ALBERT DOCK TEAM

Phase 1 of ABP’s £1.7 billion development is on course for completion by early 2019.

As you may expect there is already great interest in this high profile 4.7 million sq ft of mainly commercial space we are developing.

Now, we are seeking a highly accomplished Head of Commercial Real Estate Leasing. The role involves leading on the leasing of Phase 1 comprising 600,000 sq ft of office space and helping to shape and deliver the leasing strategy for Phase 2.

Please send an email to [email protected] with your CV or contact him on +44 (0)20 3837 6425 for more information. NEED TO KNOW I WHERE TO INVEST

STAR ATTRACTIONS Where should you be looking in 2018 if you want to make a medium-term play in residential? How about healthcare, retail, education or tech? Paul Tostevin, associate director at Savills World Research, has identified the cities you should be keeping an eye on, based on their sector-specific fundamentals over the next decade

Spring 2018 12 RESIDENTIAL Ten fast-growing cities with underlying housing need Forecast growth in number Average of households 2017-2027 household size 2027

Rank CHARLOTTE, US 1. 20.8% 2.7

MELBOURNE, AUSTRALIA IMAGEBROKER/REX/SHUTTERSTOCK 1 Charlotte, North Carolina is 2. 2.7 forecast to be America’s 19.3% second fastest growing city over the next decade (after Austin), and is still a little earlier on the curve than some other US cities. DUBLIN, IRELAND 3. 15.6% 2.7

LONDON, UK 4. 13.0% 2.4 IMAGEBROKER/REX/SHUTTERSTOCK 5 Munich is Germany’s fastest growing city and boasts its 5. 10.6% 1.9 strongest economy. Household numbers are MUNICH, GERMANY forecast to rise by 10.6% by 2027, a rate higher than any other German city. 6. 9.3% 2.1

HELSINKI, FINLAND

7. 6.9% 2.3 PRAGUE, CZECH REPUBLIC

8. 6.5% 2.0 AMSTERDAM, NETHERLANDS ALFONSO JIMENEZ/REX/SHUTTERSTOCK ALFONSO 9 After years of stagnation, the Paris residential market has 9. 5.8% 2.3 returned to growth. The “Grand Paris” infrastructure PARIS, FRANCE project will unlock the potential of the near suburbs. 10. 4.1% 2.1 MILAN, ITALY

Spring 2018 13 NEED TO KNOW I WHERE TO INVEST EDUCATION LUXURY RETAIL Ten youthful cities with strong university standings Ten cities attractive to investors in luxury retail, based and appeal to international students on market size, occupational demand and leasing terms

Forecast growth in 15-24 Universities Prime luxury retail rent Q3 17 Share of global population 2017-2027 in QS rankings ($ per sq ft per annum) luxury store openings 2017 (%) Rank Rank NEW YORK, Rank BARCELONA, SPAIN US 1. 23.8% 4 Rank1. $3,200 3.7

Barcelona has four QS-ranked institutions and offers students an enviable quality of life. International players have entered LONDON, UK its purpose-built student accommodation sector. 2. 5.0 DUBAI, $2,918 UAE 2. 2 London remains one of the most visited cities, attracting a 22.4% growing number of Chinese tourists. It also has a relatively affluent domestic population and attractive occupier terms. Dubai has emerged as a regional higher education hub in the Middle East, home to more international branch PARIS, campuses than any other city. FRANCE 3. $1,636 5.9 AUSTIN, US 1 3. 22.0% TOKYO, JAPAN 4. 5.9 TEL AVIV, $1,157 ISRAEL 4. 19.3% 1 5. $700 5.9

LOS ANGELES, US 11.8% 5. 3 $642 BERLIN, GERMANY 6. 0.6 SEOUL, SOUTH KOREA 9.7% 6. 2 $361 2.2 WARSAW, POLAND 7. SHANGHAI, CHINA 7. 8.5% 3 8. 0.6 LISBON, PORTUGAL MIAMI, US $350 4.1% 9. 3.1 8. 2 TORONTO, CANADA $318 BRISTOL, UK Toronto is a growth market driven by an increasing number 3 of Chinese tourists and relatively lower rents than seen in 9. MONTREAL, CANADA 1.3% other global retail cities. 10. 2 10. 0.6 VIENNA, AUSTRIA 1.3% MADRID, SPAIN $236 PBSA investment in Austria has been focused on Vienna, a Madrid’s improving domestic retail backdrop and appeal to city rapidly growing in appeal to international students high-spending international visitors has seen a resurgence thanks to nominal tuition fees. of occupational demand.

Spring 2018 14 HEALTHCARE TECH Ten cities with rapidly ageing populations, growing Ten global centres of tech, talent-rich, business- healthcare spend, and emerging healthcare tourism friendly with established and growing tech sectors

Forecast growth in over 65s Total over Millennial-to-boomer Cost of a population 2017-2027 65s population ratio flat white ($) 2027 (m) Rank Rank HO CHI MINH AUSTIN, US CITY, VIETNAM Rank1. 98% 0.9 Rank1. 1.5 3.50

Austin in the US is a more affordable, talent-rich Ho Chi Minh City’s over-65 population is forecast to double alternative to San Francisco. This small Texan city punches in the next decade, rising wealth is coinciding with rapidly well above its weight. growing private healthcare spending.

LONDON, UK SAN JOSE, COSTA RICA 2. 1.3 3.32 2. 90% 0.3 London is the recipient of more venture capital than any other European city, and its world city status attracts global talent. SINGAPORE AMSTERDAM, 3. 83% 1.3 NETHERLANDS 3. 1.2 2.47 Singapore has an excellent healthcare system and a wealthy SAN FRANCISCO, US population and over 65s are set to top 1.3m by 2027. 4. 1.1 3.75 BANGKOK, THAILAND 4. 2.5 NEW YORK, US 76% 5. 1.1 3.60 75% COPENHAGEN, DENMARK 5. 0.3 6. 1.1 4.33 CALGARY, CANADA Copenhagen’s vibrant urban scene attracts and retains talent. However, space in the centre of the historic Danish 6. 67% 2.0 capital city is limited. HONG KONG, CHINA BOSTON, US 7. 1.1 3.37 7. 65% 0.6

KUALA LUMPUR, MALAYSIA TORONTO, CANADA 62% 8. 2.30 8. 0.4 1.0 JACKSONVILLE, US 9. 0.6 SINGAPORE MINSK, BELARUS 37% 9. 1.0 3.67 1.5 10. MADRID, SPAIN 27% The number of over 65s in Madrid is forecast to rise at a 3.30 faster rate than its overall population and the care home 10. 0.9 segment offers particular potential. BERLIN, GERMANY

Spring 2018 15 NEED TO KNOW I GLOBAL 100

Spring 2018 16 2018 GLOBAL TOP 100 Chinese investors have become a force to be reckoned with in real estate, toppling several long-standing investors from their perches in EG’s annual list

Samantha McClary spot – it bounds above the Deputy editor Canadian investor with total nless you have been assets of $194.4bn compared hiding under a rock for with $159.8bn. Uthe past two years you Combined, EG’s top 100 will have noticed the flood global investors hold more of Chinese money into real than £4.6tn of real estate, up estate. from $3.9tn last year. Together, Chinese firms have been the total value of the Global gradually increasing their 100’s portfolio is the same as standing in EG’s annual Global the GDP of Japan. Only the US 100 – a list of the top real and China have GDPs larger. estate-owning firms – since While US firms continue to the launch of the ranking in dominate the Global 100 in 2014. But this year they both number and value, dominate, toppling long- Chinese companies are not standing leader of the ranking far behind them. Brookfield Asset Management. Some 29 US firms are listed The new biggest real estate- in the rankings, with a owning company in the world combined portfolio value of is China’s Evergrande Real $1.5tn, while 16 Chinese firms Estate. The Guangdong-based make the top 100 with a total firm raced up the ranking from portfolio value of $952.9bn. ninth to second last year, but On average, Chinese firms this year it does more than have a larger asset base than nudge Brookfield off the top US firms, at $59.5bn to $52.5bn.

Spring 2018 17 NEED TO KNOW I GLOBAL 100

AT A GLANCE TOP 100 GLOBAL REAL ESTATE-OWNING COMPANIES

Company Country Key Contact Total assets ($bn) 1 Evergrande Real Estate China Xia Haijun 194.4 2 Brookfield Asset Management Canada Barry Blattman 159.8 3 China Vanke China Wang Shi 119.5 4 Blackstone US Jonathan Gray 111 5 Dalian Wanda Commercial Propertiers China Wang Jianlin 109.2 6 TH Real Estate US Mike Sales 107 7 Hines US Hasty Johnson 106 8 Greenland Holdings Group China Jian Huang 99.6 9 CBRE Global Investors US Ritson Ferguson 98.3 10 AXA Real Estate France Isabelle Scemama 90.7 11 Tishman Speyer US Jerry & Rob Speyer 86.1 12 UBS Global Asset Management Switzerland Thomas Wels 86 36% 13 Country Garden Holdings China Yang Huiyan 85.1 14 Swiss Life Asset Managers Switzerland Stefan Machler 83.7 The percentage of the total asset 15 JP Morgan Asset Management US Anton Pil 82.8 base of the Global 100 that is owned by Asian firms. Together, 16 Sun Hung Kai Properties Hong Kong Thomas & Raymond Kwok 80.1 China, Hong Kong, Singapore 17 Principal Real Estate Investors US Randy Mundt 78.2 and Japan-based firm’s own 18 PGIM Real Estate US Eric Adler 69 almost $1.7tn of real estate. 19 Poly Real Estate China Wang Jian 68.3 The total puts Asia on a par 20 AEW Global US Jeff Furber 68.1 with North America in terms 21 Wheelock & Co Hong Kong Peter Woo 67.1 of portfolio value. 22 Invesco Real Estate US David Ridley 65.1 23 Allianz Real Estate France François Trausch 63.3 24 Abu Dhabi Investment Authority UAE William Schwab 62.1 $72.7bn 25 LaSalle Investment Management US Jeff Jacobson 59 26 Colony NorthStar US Thomas Barrack 58 Average portfolio value of the 27 Starwood Capital US Barry Sternlicht 56 three Canadian firms listed in 28 China Resources Land Hong Kong Wu Xiangdong 55.1 the Global 100. While 29 New World Development Hong Kong Henry Cheng Kar-Shun 54.2 Brookfield may have found 30 Deutsche Asset & Wealth Management Germany Pierre Cherki 53.6 itself knocked off the leading position in the rankings, its 31 Cheung Kong Property Holdings Hong Kong LI Ka-Shing 51.2 massive portfolio means its 32 APG Netherlands Eduard van Gelderen 49.4 fellow Canadian propcos hold 33 Patrizia Immobilien Germany Wolfgang Egger 49 the most valuable portfolios on 34 Aviva Investors UK Ed Casal 47.7 average than any of the other 35 Temasek Singapore Alpin Mehta 46.8 countries listed. 36 Mitsui Fudosan Japan Hidehisa Take 46.7 37 Mitsubishi Estates Japan Hirotake Sugiyama 46.3 38 Henderson Land Hong Kong La Ka Kit 45.9 3/5 39 Clarion Partners US Stephen Furnary 43.3 40 Unibail-Rodamco France Christophe Cuvillier 43 Number of spaces in the top 41 Barings US Scott Brown 42.7 five taken up by Chinese firms 42 Credit Suisse Real Estate Investment Management Switzerland Beat Schwab 42.7 43 Sumitomo Realty Japan Kojun Nishima 41.1 44 M&G Real Estate UK Alex Jeffery 39.2 $46.6bn 45 Deka Germany Ulrich Bäcker 39.2 Average value of real estate 46 Heitman US Maury Tognarelli 38 that the Global 100 firms own 47 Shimao Property Holdings China Hui Wing Mau 37.7 48 Qatar Investment Authority Qatar Navid Chamdia 37.4 49 Bentall Kennedy Canada Gary Whitelaw 37 4 50 Union Investment Germany Martin Bruhl? 36.6 The number of countries that are only represented once in the Global 100: Qatar, Norway, Italy TOP 15 SOVEREIGN WEALTH FUNDS BY CURRENT ALLOCATION TO REAL ESTATE and Kuwait Sovereign wealth fund Key contact Current Allocation to Real Estate ($bn) Total assets ($bn) 1 Abu Dhabi Investment Authority United Arab Emirates William Schwab 62.1* 2 Temasek Singapore Alpin Mehta 46.8** $1tn 3 Qatar Investment Authority Qatar Navid Chamdia 37.4 Total value of real estate owned 4 China Investment Corporation China Xiaoqing Bai 22.3*** by European companies, with 5 Government Pension Fund Global Norway Karsten Kallevig 22.0 France leading the way with 6 GIC Singapore Kok Sun Lee 20.2 combined portfolio value of 7 Kuwait Investment Authority Kuwait Ahmad Al-Bader 15.7 $275.7bn from six firms. 8 Hong Kong Monetary Authority Hong Kong Danielle Lau 7.4 9 Future Fund Australia Barry Brakey 5.4 10 Alaska Permanent Fund Corporation US Russell Read 4.5 $15.7bn 11 Korea Investment Corporation South Korea Jong-Ho Kim 3.7 Minimum portfolio value that 12 Khazanah Nasional Malaysia Kenneth Shen 3.6 any company hoping to make 13 Alberta Heritage Savings Trust Fund Canada Rod Babineau 2.7 the Global 100 would need 14 Texas Permanent School Fund State Board of Education US John Gubenman 1.9 this year. 15 New Mexico State Investment Council US Robert Smith 1.6 *Estimate**Allocation to Real Estate and Consumer Sectors ***Estimate as part of 37.2% Alternative Assets Portfolio

Spring 2018 18 TOP 100 GLOBAL REAL ESTATE-OWNING COMPANIES

Company Country Key Contact Total assets ($bn) 51 Legal & General Property UK Bill Hughes 34.5 52 Generali Real Estate Italy Aldo Mazzocco 33.4 53 Morgan Stanley Real Estate US John Klopp 33 54 Guangzhou R&F China Zhang Li 32.6 55 Longfor Properties China Wu Yajun 32.4 56 Mapletree Investment Singapore Hiew Yoon Khong 32.3 Oliver Senchal, head of real estate products, Preqin 57 CapitaLand Singapore Lim Ming Yan 31.7 58 Simon Property Group US David Simon 31.1 59 American Tower US James Taiclet 30.9 Sovereign wealth 60 ProLogis US Hamid Moghadam 30.3 funds in real estate 61 Goodman Australia Gregory Goodman 30.2 62 BNP Paribas Real Estate Investment Management France Thierry Laroue-Pont 29.5 Despite being small in 63 Welltower (formerly Health Care REIT) US Tom DeRosa 28.9 number and secretive in 64 Amundi Real Estate France Jean-Marc Coly 28.6 nature, sovereign wealth 65 Angelo, Gordon & Co US John Angelo 28 funds continue to capture 66 Fidelity International UK Neil Cable 26.9 attention as a result of 67 Emaar Properties UAE Fred Durie 26.2 their ever-growing AUM 68 Beijing Capital Development China Wen Yang 26.1 69 Commerz Real Germany Robert Bambach 26.1 and corresponding 70 Greentown China Holdings China Shou Bainian 24.4 influence on global 71 Hang Lung Group Hong Kong Phillip Nan Lok Chen 24 financial markets. 72 Syntrus Achemea Real Estate & Finance Netherlands Rob Vester 24 Alternative assets have 73 Ventas US Debra Cafaro 23.2 emerged as an important 74 BlackRock US Laurence Fink 23 part of many SWF 75 General Growth Properties US Sandeep Mathrani 22.7 portfolios, with 76 Greystar Real Estate Partners US Andrew Livingstone 22.7 investment in real estate 77 China Investment Corporation China Xiaoqing Bai 22.3 their most common route 78 Standard Life Aberdeen UK Martin Gilbert 22.2 into alternatives. Currently, 79 Gemdale China Huang Juncan 22.1 56% of SWFs hold 80 Norges Bank Invesment Management Norway Karsten Kallevig 22 81 Sino-Ocean Land Holdings China Luo Dongjiang 21.8 allocations to real estate. 82 Link REIT Hong Kong George Kwok Lung 21.8 Direct investment (78%) 83 Manulife Asset Management Canada Kevin Adolphe 21.4 remains the most attractive 84 Vornado Realty US Michael Franco 20.8 route for SWFs. But some 85 Equity Residential US Davide Neithercut 20.7 73% of SWFs invest 86 Fonciere des Regions France Jean Laurent 20.6 through private real estate 87 Global Logistic Properties Singapore Jeffery Schwartz 20.5 funds. And in a time when 88 GIC Singapore Kok Huat Goh 20.2 the fundraising market is 89 USAA Real Estate Company US Len O'Donnell 20 intensely competitive, 90 Dexus Property Group Australia Darren Steinberg 20 these capital commitments 91 Shanghai Industrial Holdings China Zhou Jie 19.5 have the potential make or 92 Land Securities UK Rob Noel 19.3 break a manager’s 93 Sino Land Hong Kong Daryl Ng 19.3 94 Savills Investment Management UK Justin O'Connor 19 fundraising plans. 95 Agile Property Holdings China Chen Cheuk Yin 19 SWFs are not immune 96 Boston Properties US Mort Zuckerman 18.9 to challenges faced by the 97 Shui On Land China Vincent Lo 18.9 wider real estate investor 98 Westfield Group Australia Frank Lowry 18.8 pool; the depletion of 99 Tokyu Fudosan Japan Yuji Okuma 18.3 prime assets due to 100 Kuwait Investment Authority Kuwait Ahmad Al-Bader 15.7 increased demand and limited supply of REGIONAL BREAKDOWN institutional-grade property means finding deals at the right price is a concern. Those entering the asset class later may $1tn find limited opportunities, Europe particularly when they have such large amounts of capital to deploy. $1.7tn Despite representing North America just 0.8% of the $1.7tn institutional real estate Asia investor population, SWFs $141.4bn are responsible for Middle East approximately 6% of $69bn capital invested in the Australasia asset class.

Spring 2018 19 NEED TO KNOW I REITs

UK REX SHUTTERSTOCK REX

US Poland REX SHUTTERSTOCK REX SHUTTERSTOCK REX REX SHUTTERSTOCK REX REIT AROUND THE WORLD Already popular and well-understood in some countries, real estate investment trusts are now being adopted more widely and are subject to increasingly favourable tax treatment, write Elliot Weston and Cam Cosby of Hogan Lovells

e are seeing the (the “Jobs Act”), which is the US REITs is the reduction in the from UK corporation tax on continued strength most comprehensive US tax tax rate (and withholding tax UK property gains and rental Wof the global REIT legislation in more than 30 rate) under the Foreign income profits. brand. Being a tax-efficient years. The cornerstone of the Investment in Real Property In addition, from April 2017 structure, a REIT is an Jobs Act is a permanent Tax Act from 35% to 21%. UK REITs that are at least 80% increasingly popular choice for reduction in the top US federal owned by qualifying real estate around the world. corporate income tax rate United Kingdom institutional investors have Here we take a look at the from 35% to 21%, effective There has been a substantial been able to benefit from the latest new REIT regimes being from 1 January 2018 for growth in the number of UK full substantial shareholdings proposed or adopted and law calendar-year corporations. REITs in recent years. The exemption from UK tax on changes to existing REIT While there are changes to government’s proposals to gains on disposals of markets around the world. certain aspects of the taxation charge non-UK resident shareholdings of 10% or more. of US REITs, the Jobs Act does investors a UK tax on gains on United States not change the overall manner disposal of all UK property Poland On 22 December 2017, US in which US REITs and their from April 2019 have made UK A new draft law introducing president Donald Trump shareholders are taxed. One REITs an increasingly attractive REIT structures into Poland is signed into law HR 1, known favourable effect of the Jobs option for property investors. being prepared. Polish REITs as the Tax Cuts and Jobs Act Act on non-US shareholders in All UK REITs are exempt will operate in the form of

Spring 2018 20 Italy REX SHUTTERSTOCK REX

Indonesia Hungary REX SHUTTERSTOCK REX

joint stock companies with a operate their businesses in the caused a leap in the value of Income tax on land or building minimum share capital of form of a REIT. the real estate index on the transfers has been reduced 50m zloty ($15m) and shares These benefits include Italian stock exchange. from 5% to 0.5% and the 5% listed on the Warsaw Stock certain exemptions from In the mid-term, an increase gross income tax imposed on Exchange. The legislation will corporate and local taxes and of listings for the Italian SIIQ non-REIT transfers of land or provide tax incentives with stamp duty. Companies (real estate investment listed buildings has been reduced to regard to the profits registered as a REIT do not companies) – which has 2.5%. distribution and dividends. have to pay corporate and suffered more than other Moreover, to consolidate The draft law is subject to local taxes as long as they pay players in the past – is the regulations and encourage continuing changes – the 90% of their earnings to expected. domestic REIT listings, latest version provides that shareholders as dividends. In addition, listed real estate amendments were made to REITs will be allowed to invest Since these changes came funds might benefit. Indeed, the REIT regime (effective 22 in residential properties only, into force, there has been an even if their eligibility for December 2017), including a which was a surprise for the increase in interest from inclusion in the PIR is still being requirement for at least 80% market. We expect the new market players in the REIT discussed (as they are not of the REIT’s net asset value to law to come into force this structure in Hungary and it is properly real estate consist of real estate assets (a year. However, the draft hoped that this will further companies), their underlying maximum of 20% of the REIT’s legislation may yet be encourage real estate investors assets might be targeted by net asset value can be other amended and we await the to operate in the form of a PIR investments. assets related to real estate, final wording. REIT in Hungary. money market instruments, It should be mentioned Indonesia securities, and cash/cash that during the past few Italy Tax incentives for Indonesian equivalents). months no new proposals of The real estate market in Italy REITs were unveiled under the REITs are now permitted to the regulation were has started to grow again over 11th Policy Package on invest in real estate assets that presented, which may be the past two years and a 29 March 2016, followed by are in final construction stages, caused by the changes in the further evolution is expected several Indonesian Financial as long as the asset provides government. in 2018. This trend influenced Services Authority regulations. the REIT with income within six the decision to amend the PIR The Indonesian REIT market months of transfer. Hungary (personal saving plan) rules had generally been As a result of a tax package – granting to individual considered unattractive Elliot Weston and Cam Cosby adopted by the Hungarian investors a special tax because of high tax rates. are tax partners in Hogan parliament in the summer of exemption for income However, the Indonesian Lovells’ global REIT team. 2017, real estate investors may generated by the PIR – so as government has made Weston is based in London now receive significant tax to include real estate significant headway in and Cosby is based in benefits, provided that they investments and immediately promoting domestic REITs. Washington in the US.

Spring 2018 21 NEED TO KNOW I Q&A

QWhere& will agileA workplaces ultimately lead us? WESTEND61/REX/SHUTTERSTOCK

The growth of Neil Usher creates an interesting thought under the expectation of the agile workplaces for us in property: that actually, creation of something amazing, around the world Former workplace director, Sky; the form of the workplace and guiding a seamless adaptation A:could lead us to executive consultant, Unispace the workstyle we choose will all to the new environment. one of three outcomes. The be determined by the It may be the pragmatic first is that it becomes the prevailing technology of the technocrats who will ultimately inevitable future for everyone your own smorgasbord, and time and those who manage it. run the show. There will still be – the ultimate reconciliation of you can call it what you like. The workplace sector has an essential role for creativity sterile corridors of private That’s not a bad thing, it’s just a been toying with the idea that and we will continue to aspire offices being serried rows of thing. human resources might provide to the aesthetic. But workspace soulless and degrading open- Daniel Bell’s The End of a refreshing alternative sponsor will simply be workspace, plan desks. Option two is that it Ideology, published in 1960, to the exhausted leaders of designed to suit and enable is nothing more than a passing suggested that the high-minded corporate real estate. This is the organisation, and not in phase with which we soon and pure ideologies of the 19th refreshing only because, in the service of a grand abstract idea. dispense, and option three is century had run their course, main, HR has not yet trodden We will talk about the days of that it could challenge our and that from here we would through property’s unique traditional, social-democratic, natural tendency to territoriality, be guided by practicality and embodiment of quicksand. By flexible, agile, activity-based proving it to be ultimately governed by technocrats. that I mean its multiple space and wonder why we unworkable. While the thesis has oscillated competing interests, sudden fretted so much over ideology. The most interesting and between a product of its age and unexplained changes of We will skip attempts to create likely of the three as it presently and a pervading reality, the direction and arbitrary access to something new out of what is stands is the last. I would argue aspect relating to technocrats capital, all the while operating essentially the same. there is a decent chance that Facing the end of ideology is we have simply reached the not a closure or a completion end of road when it comes to – it is an open-ended this trend and would go so far There are no more original workplace opportunity. We can forget the as to say that there are no more approaches available. We have thought coffee-fuelled, cold-towel original workplace approaches sessions where we try to dream available. We have thought through and provided them all. We’re up new conceptual backdrops through and provided them all. done. You now just get to pick the best bits for our creations, and just get We’re done. You now just get on with creating. And that has to pick the best bits of each for of each for your own smorgasbord. to be beneficial for everyone.

Spring 2018 22 Q&A I NEED TO KNOW

What is stopping Q:Italy becoming the next boom market of Europe?

Italian investment in Q4 2017), investors have volumes have been looking at alternative been increasing sectors for better returns. A:steadily since 2012 We have observed the and last year’s total of almost emergence of the high street €10bn is 3.7 times higher than as a preferred asset class, five years ago. Italy has now particularly in cities with high become the “next stop” after tourist flows, such as Venice Spain for investors who have and Florence, and even been looking for better returns secondary cities such as beyond the core markets. Bologna and Turin. Despite its slow growth and In addition, student housing political unpredictability, Italy is in very short supply, and has proved to be a stable and some real estate funds are less volatile market partly seeking to create government- because of a lower penetration subsidised residences to Eri Mitsostergiou the deleveraging process of of cross-border capital alleviate the problem. the banking sector, restore compared with other markets. International operators are also Director of European research, confidence in the system and Italy is a G8 economy with an exploring possibilities in the Savills create a market for NPLs for affluent population and sector, with the Student Hotel investors who are interested in significant business activity in opening its first residence in this type of product. the northern regions, as well as Florence, with others to follow property and, as a result, 71.4% We believe that 2018 will be high tourist numbers. This has in Bologna, Rome and at of dwellings are owned by another positive year for Italian attracted investors particularly another site in Florence in the individuals, limiting the investment. We may experience in the office and retail next two years. opportunity to buy residential some hesitation from investors segments of the property E-commerce has also product at scale – an asset class ahead of the elections, but we market and, more recently, in generated a plethora of activity which is of particular interest to anticipate that activity will pick hotels and mixed-use schemes. for the logistics market, global pension funds. up in the second quarter, in a The lack of modern stock achieving an investment Investor sentiment for Italy similar way that we have seen and shopping malls has offered volume of €1.1bn in 2017 – a has been driven mainly by transaction activity picking up development opportunities 70% year-on-year increase. market fundamentals, rather after critical political events in and higher returns to less risk- It’s important to note that the than political risk. A concern for the UK, France and Spain over averse players. At the same institutional residential market the Italian market is the amount the past two years. This should time, the tight and opaque doesn’t dominate the sector in of non-performing loans. be supported by positive planning regime – and the Italy like it does in Germany. However, the creation by the fundamentals, lower interest high number of listed buildings Italians have historically put government of private rescue rates, and rising liquidity in the – makes development less their capital into residential fund Atlante should speed up market as a result of banks’ attractive to more risk-averse expansive policies and funds players, but offers opportunities taking advantage of improving for refurbishment as demand market conditions. for modern space rises. As prime yields have quickly converged Activity will continue to be As prime yields have quickly with the core market levels over the past driven by European investors, converged with the core which accounted for a 47% market levels over the past few few years, real estate investors have year-on-year rise in 2017, but years (Milan’s prime office yield been looking at alternative sectors for also the rising Asian inflows into is at 3.5%, Milan and Rome’s better returns. the market, which saw a 126% prime high street yield at 2.75% increase year-on-year in 2017.

Spring 2018 23 NEED TO KNOW I Q&A

Can anything Q:stop the flurry of capital out of Hong Kong?

pricing correction. This would in our view, this really drives the result in some investors turning prices that investors are willing away from the international to pay, it is not the sole reason markets to take advantage of that drives any investor to invest the reduced domestic prices. or not. As such, while sterling But it would not affect all has recently begun to rise once investors. For many the more, we do not see this decision to invest overseas is causing a major slowdown in driven by a desire to diversify outbound investment. their wealth, not simply price Lastly, global interest rate speculation. If this were to rises could also influence happen then any slowdown capital flows. While we cannot would be temporary until be sure if, and by how much, values began to rise again. interest rates will rise again in A third scenario would be the UK (although most The question over Oliver Watt China’s capital control measures commentators are forecasting whether anything affecting the Hong Kong- an initial 25 basis point rise in can curb Director in the cross-border based subsidiaries of Chinese May), the likelihood of the A:outbound flows investment team, Savills companies. This scenario is Federal Reserve in the US of capital from Hong Kong starting to become more real. raising interest rates three times investors into global real estate Over the coming months we over the course of 2018 is now is difficult to answer as there will see the true effects of these more than 50%. Any rate are so many factors that come increased restrictions and increases diminish the attractive into play. But there are a to bolster the economy and which groups are caught by low-interest environment handful of scenarios that could asset prices. Hong Kong suffers them. It will undoubtedly affect overseas investors have grown potentially impact outbound from the opposite problem: some of the groups that have used to operating in. Until now, flows. real estate assets are in such been prevalent in the global the low cost of debt has First among these would be high demand that the markets, but by no means will it allowed investors to borrow some form of major political government is more focused affect the majority of the Hong cheaply and maximise their change, similar to that seen in on cooling measures and Kong groups that we are return on investment. As soon mainland China in 2017, which curbing inbound investment, working with. as the positive carry between resulted in outbound flows rather than those attempting to There has been much made property yields and borrowing being restricted. If a restrict outbound flows. of Hong Kong investors being costs disappears in any market comparable restriction was Another possible scenario is eager to take advantage of the this would impact investor imposed on Hong Kong- if something were to happen in currency arbitrage in the UK in sentiment, although again it is based investors, this would the Hong Kong property the period since June 2016. unlikely to curtail it completely possibly have the biggest market; for example, a major There is some truth to this, but The reality is that there are a impact on outbound flows. huge number of Hong Kong However, there is absolutely no investors that are keen to indication that this sort of diversify their assets. The measure is on the horizon. Hong Kong’s real estate assets are in such biggest change we are These types of measures come high demand that the government is therefore most likely to see will in to force when domestic be in where they choose to markets are suffering and there focused on cooling measures and curbing focus their attention. The is a desire from the relevant inbound investment, rather than outbound programme of government to take measures investment is likely to continue to keep capital on-shore to try attempting to restrict outbound flows. for a while yet.

Spring 2018 24 Q&A I NEED TO KNOW

What do you Q:really need to know about Brexit?

So much has been arrangements for a period of written on this perhaps two years. It is subject it would expected that the discussions A:be impossible to as to transition will conclude read everything. But a lot of sometime in March 2018, with what is out there is speculation the talks then moving on to the or is slanted to the writer’s longer-term detail of the particular point of view. We relationship after the end of also don’t know what Brexit is that transitional period. finally going to look like. Will it be “hard”, “soft” or some sort of Transitional arrangements soggy in between? You will 4can be laid down only in each have your own views as to the Withdrawal Agreement, so what the final deal should be it is unlikely that any such – or indeed as to whether arrangements will come into Brexit should happen at all. legal effect before the rest of Jackie Newstead Many other laws affecting Speculation aside, here is a crib the agreement. 8businesses in the UK do sheet of the nine things you Global head of real estate, derive from the European really do need to know. Over the coming months, Hogan Lovells Union or are implementations 5it is expected that the EU of European Union law. It is The government triggered and the UK will begin to firm proposed that this be dealt 1Article 50 on 29 March 2017, up the legal text of the parliamentary vote determined with by the repeal of the which means that from 1 April Withdrawal Agreement, with that whatever the final deal that relevant legislation and its 2019, the UK will no longer be a view to finalising the detail the government agrees with substitution with equivalent part of the European Union. of it by October. That the European Commission may national legislation through agreement will need to be be, it will need to go before what has been termed the The first phase of the ratified by the EU and be parliament to be ratified as part Great Repeal Bill. 2negotiations between the transposed into UK law via an of the process. This is expected European Commission and the act of parliament. to take place towards the end In the meantime, the UK government, which of 2018. 9uncertainty of where this covered what has been called The legislation to give will all end up is causing the “divorce bill”, concluded in 6effect to this is the UK land law itself does not corporate occupiers to make late 2017 and the European Withdrawal Bill. This has 7have to change. It falls contingency plans – and in Commission has decided that been going through the outside the ambit of the Treaty some cases they are already sufficient progress had been parliamentary process and of Rome and the way investors committing to moving parts made for the parties to move is currently at the committee hold property will continue as it of their operations out of on to the next phase. stage in the House of Lords. A is currently. London and into other European cities, such as That next phase is the Dublin, Paris, Frankfurt and 3discussion around Amsterdam. The full extent transitional arrangements. The UK land law itself does not have to of those moves is not yet intention of the transitional change with Brexit. It falls outside the known. Financial institutions, arrangements is to ensure that in particular, are concerned even though the UK is no ambit of the Treaty of Rome and the way about the regulatory longer part of the EU, the move investors hold property will continue as it environment and the City has from “in” to “out” is softened by proposed a system based on continuing some of the current is currently. regulatory alignment.

Spring 2018 25 NEED TO KNOW I Q&A

When will the Q:Japanese make their move?

Adding to this reluctance is a Japanese investors general nervousness towards misunderstanding the vagaries investing in less familiar of the leasing markets and overseas markets – a incorrectly valuing projects, characteristic many (although using only the replacement not all) of the Japanese value as a metric, and investors we speak to share assuming the value of land – and the structural would always increase at a differences that exist between fixed annual rate. the Japanese and foreign In addition, 30 years ago markets. many failed to appreciate the In comparison with their UK differences between high- counterparts, for instance, yield but high-risk and Japanese office tenants are far low-yield but low-risk assets. more protected, with Hence, for instance, they According to Shigeki Nakajima landlords covering the cost of chose New York office preliminary RCA business rates, maintenance properties offering 7% yields data for 2017, a Head of the Japanese desk in and repairs and insurance. with 3-5 years remaining on A:total of ¥3.826tn Savills’ capital markets team Buying an office in Japan the lease, above London (£24.9bn) was transacted in therefore involves providing a offices yielding 5.5% on 15-20- Japan’s property market last far greater hands-on service year leases. In the end, when year. This marked a decline in which can impact on pricing the New York market was year-on-year volumes, but and creates challenges if you under pressure, resulting in overseas buyers were slightly beyond home shores are try to compare yields in Japan huge reductions in values, more active. By and large, largely pursuing a currency to those in the UK at face they were forced to sell, however, Japan is still play, taking advantage of value. realising the capital loss. dominated by domestic recent fluctuations, rather than However, this is offset If they had chosen the investors. diversifying geographically to somewhat by Japan’s lower lower-yielding London The drop in volumes last spread risk. interest rate environment, properties, the longer leases year can be attributed to the Meanwhile, Japan’s which offers the highest risk- would have meant that they comparative lack of domestic, Government Pension free return in the world. With could have held their position large-scale, core investment Investment Fund – the world’s many domestic projects and maintained a sound cash opportunities – not a lack of largest public pension fund, financed at rates substantially flow with hardly any reduction appetite. Some domestic which now holds ¥141tn below 1%, investors are able in values. investors are more likely to (£924bn) under management to carry these extra costs. So, while there is a slow move up the risk curve, but – has expressed a desire to It’s not fully understanding undercurrent of interest from these tend to be more at the invest overseas. the differences between the Japanese investors in the periphery of the market, not It’s in need of a clear strategy Japanese and foreign markets international markets, and we the well-known big names that in order for this to happen, but that is sometimes blamed for hope that more will start to may venture into international is planning to invest through the mistakes made in the look overseas, a combination waters. fund/investment managers 1980s, when we saw some of factors and previous poor Tokyo’s core investment when it has sufficiently grown Japanese investors make ill- experiences means there is market remains buoyant so, for its real estate team and advised decisions to buy at the nothing approaching a wave the time being, we are unlikely become more familiar with its top of the market only to lose of cross-border investment at to see many investors looking target overseas markets. For this money when prices crashed. the moment, and this is abroad for a home for their reason, the GPIF is unlikely to But we would argue that the unlikely to change in the near capital. Those few that do look be the first mover. fault more likely lies in some future.

Spring 2018 26 Q&A I NEED TO KNOW

How important is Q:cyber security to the real estate industry?

Cyber security conference); and if you think risks are rising in changing the temperature is the commercial not a problem, then think of A:real estate the steel mill in Germany that industry — and building literally melted when its management systems can be thermostatic controls were part of the exposure. hacked; or what might happen Like any other industry, in a temperature-controlled commercial real estate is not warehouse. immune to cyber security Stand-alone systems with no threats. Both property owners wi-fi are not secure from the and tenants may hold their disgruntled employee or sensitive data in separate enterprising hacker – we know systems, but increasingly the of a security consultant, hired systems connect, exposing by a company to test its them both to the weakest link computer security, who simply Dan Norris is suspended (covered by the in their security. made his point by sending a loss of rent insurance). The Building cyber “bridges” photo of himself jacked into UK head of real estate, landlord may be able to between systems not only the server having breached Hogan Lovells include cyber as an insured exposes data to privacy physical security. risk. If it can’t, then the violations (it is outside the uninsured risk provisions may scope of this article, but both Is insurance the answer? help, if there are any, which landlords and tenants need to The insurance industry is usually means the landlord will give thought to GDPR), but working hard to develop policies that are available for bear the loss. However, if there also to security breaches. affordable products that will data breach, which are more is no physical damage then Breaches can have expensive protect property owners from developed.) there are no provisions in the and disruptive consequences. both physical damage At the moment, institutional lease that will help. resulting from hacks and losses leases are completely silent What is the exposure to hacking caused by hacks that do not about any kind of cyber risk. In Would the tenant have a claim for and cyberterrorism, and what cause any physical damage the simplest terms, a lease says breach of quiet enjoyment? protection is available? (such as sealing the doors, or that the landlord will insure The policy needs to cover that. Cyber breaches are a particular jamming the lifts). Insurance against damage to the In sophisticated buildings, issue for modern, commercial products are emerging, but property by fire and other building management systems multi-let investment properties. you need to check the policy usual risks. need to be kept secure. That In more sophisticated terms very carefully – and then In the event of damage, the means software and hardware buildings, the BMS commonly think about who is going to landlord will use the insurance will need to be upgraded and interacts with tenant systems, bear the cost. (This insurance proceeds to rebuild the tested for security. The lease the landlord’s property should not be confused with property, and the tenant’s rent may not provide for the cost of management systems, and that to be recovered through may offer wi-fi to visitors. the service charge, so that may Cyber-terrorists will look for The BMS commonly interacts with be another cost to the the weakest link. landlord. There are reported cases of tenant systems, the landlord’s property Landlords need to prepare whole hotel heating and management systems, and may offer for the worst – with meaningful cooling systems being hacked maintenance plans, an by guests using tablets (one wi-fi to visitors. Cyber-terrorists will look effective response strategy during a cyber security for the weakest link. and a fresh look at their leases.

Spring 2018 27 ANALYSIS I GLOBAL HQs

PRIME LOCATIONS Amazon’s requirement for a second headquarters has prompted fierce competition between North American cities. When it comes to choosing a new home, do modern technology giants really have different needs from other organisations?

he hunt for a global prospect of making the cut business headquarters – was assembled in October Tused to be a fairly 2017. straightforward affair. Then In January 2018, all but 20 of Amazon’s HQ2 requirement the candidate cities were came along. ejected from the race. Ever The search has been a roller- since, observers have been coaster. A cross between TV’s wondering what swung it for Big Brother and a fiendish, the lucky shortlisters – and real-time geeky experiment, which of them will eventually the tech giant’s hunt for the claim the requirement. perfect city to call home for its There’s certainly a lot at second HQ has gripped the stake. The winner will get a USA for a year or more. And it’s campus to rival Amazon’s not over yet. existing 8.1m sq ft downtown A long-list of 238 US cities Seattle HQ. The invitation to – mostly self-selected bid suggests Amazon will hire hopefuls with little realistic as many as 50,000 new staff

Spring 2018 28 Spring 2018 29 ANALYSIS I GLOBAL HQs

for its HQ2, and that they will AMAZON’S RUNNERS AND RIDERS: WHAT THE FINAL 20 HAVE TO OFFER be paid an average of $100,000 each. The firm has Location Tech Average rent Tech talent Time from Potential sites talent (for 75,000 wages (per downtown to hinted this means an initial rank sq. ft office) 250 people) airport (in minutes) requirement of 500,000 sq ft, rising to 8m sq ft by 2027, and Atlanta 5 $1,828,500 $23,095,030 18 Stonecrest. 345 acre town to be renamed Amazon a $5bn annual economic boost Austin 8 $2,541,750 $22,860,779 23 Fomrer Motorola campus. 100+ acres to the lucky host city. Boston 9 $2,693,250 $25,994,778 12 Suffolk Downs Tea-leaf reading suggests Chicago 15 $2,226,000 $22,800,090 41 Burnham Lakefront Washington DC is the front- Columbus 28 $1,442,250 $23,127,524 8 49-acre former Michael Reese hospital, Bronzeville runner, with suburban Dallas 10 $1,796,250 $23,334,635 25 Cedas neighbourhood/Valley View Mall Maryland in the Washington Denver 12 $1,973,250 $25,095,733 36 17 acres of car parking at Elitch Park; c50 acrd; 41-acre Upper Fox, DC area, suburban Virginia in the former Denver Post site; 50 acre Gates Rubber plant the DC area, and DC itself Indianapolis 33 $1,407,000 $19,418,121 16 211 acres at Metropolitan airport; 130 acres at the International airport old terminal; 27 sq miles of farmland in eastern Hamilton ranked just a shade below county; 103 acres former General Motors stamping plant; 60 acres Atlanta in many commentators’ at tech 16 lists. New York-based property Los Angeles 24 $2,738,431 $23,904,222 37 487 acre Pomona Fairplex; 46 acre Roocketdyne facility at the analytics business Reis Warner Center; developed a scoring system Miami — $2,733,000 $18,924,926 10 100 acres at Downtown Doral (+White Course); 10 acre Innovation Center + adjacent 30 acre Miami Worldcenter project; based on what Amazon said it Montgomery n/a $2,201,350 n/a 13 45.3-acre White Hall Flint mall site wanted (see panel), and this County pointed in the same direction. Nashville 43 $1,869,750 $19,855,301 13 300-acre Century Farms, Antioch; 180-acre Buchanan Point; 72-acre But with Amazon boss Jeff River North project Bezos owning the Washington New York City 3 $5,709,750 $30,789,506 34 Midtown West (26m sq ft)/Long Island (13m sq ft)/Financial District Post newspaper, Reis lower Manhattan (8.5m sq ft)/Brooklyn Tech Triangle (15m sq ft) economists Barbara Byrne Newark 13 $1,930,500 $26,903,042 10 2.3m sq ft redevelopment of Bears & Eagles Riverfront stadium Denham and Victor Canalog, Northern Virginia n/a $4,200,000 n/a _ 85-acre The Hub near Dulles airport noted: “The location decision Philadelphia 22 $1,995,000 $23,387,633 17 Schuylkill Yards/uCity Square/Navy Yard Pittsburgh 30 $1,634,250 $20,107,965 26 15-acres of industrial land in North Side; 28-acre former Civic Arena could come down to factors in Lower Hill District; 195-acre World Trade Center at Pittsburgh not listed in this analysis. These airport measures include the tax Raleigh 7 $1,854,750 $23,600,083 24 300-acre Research Triangle Park; 7000-acre Chatham Park incentives granted by the city/ Toronto 6 $1,913,318 $11,802,660 22 10 sites including 18m sq ft of new space downtown; 180-acres of state, the ‘creativeness’ of the land in Missassauga; 28m sq ft Vaughan Metropolian Centre; 3.4m sq ft Markham Centre; 112-acres in Brampton; 184-acre Bronte location, other immeasurable Meadows in Burlington. qualitative features or an Washington D.C. 4 $2,793,000 $27,082,593 21 130-acre Anacostia Riverfront; 67-acre Capitol Hill East; 6m sq ft underlying preference on the around Shaw-Howard University; 12.6m sq ft around NoMa-Union part of the decision makers for station such things as access to skiing, a lake, river or ocean. Or the to work in an interesting place HQ decisions are bordering factors – often difficult to decision could be based on with a ‘buzz’. This means not on the non-rational? Kitson measure – such as ‘buzz’ and whether or not the decision just good housing but local says no – not quite. “I think collaborations with others. If maker owns a newspaper in access to cultural facilities, that tech companies are no it makes sense for Jeff Bezos the city.” open spaces and, for families, less rational than any other to locate Amazon in In other words, the location good schools.” companies. They may just Washington, that is rational of a $2bn capital investment Does that mean that tech have to consider more for him.” could come down to who likes In the generous what kind of sport – which is geography of the Pacific not very encouraging for those What Amazon said it wanted coast, Portland, Oregon, is who like to think tech not far from Amazon’s Seattle businesses make hyper- The HQ2 requirement will go to a metropolitan area with a base. From his office in rational decisions. population of 1m or more. Amazon wanted a prepared site of 100 Portland, Bert Sperling, vice- Michael Kitson, senior acres, and a host that could think creatively. It didn’t much care president at location finder lecturer at Cambridge whether it was downtown or out-of-town, greenfield or brownfield. Sperling BestPlaces, has University’s Judge Business Amazon also insisted HQ2 should be 45 minutes from an been watching Amazon School, says this kind of international airport, just one or two miles from a major highway, and closely for signs of big-tech’s indefinable “buzz” is often part it wanted mass transit on site. current HQ needs. of technology HQ decision The bid document said that “cultural fit” was important, explaining One of them is size: the making. that this included “the presence and support of a diverse population, Amazon requirement will “High-tech companies have excellent institutions of higher education, local government structure” mean around 150,000 to to consider a range of factors,” and elected officials “eager and willing” to work with Amazon. 175,000 new residents for the he says. “Access to skilled The company also wanted “an overall high quality of life” but host city. Only big, prosperous labour is crucial – and in many didn’t say what it expected that to mean – although it did ask for and well-organised locations cases this means access to information about the diversity of the local housing market, crime will be able to cope with highly skilled scientists and statistics and cost of living data. that level of migration, says technologists. Offering Amazon estimated the first phase of up to 1m sq ft would mean Sperling. generous remuneration is one capital expenditure of $600m, and that the entire project amounted “There is plenty of talk that part of the package, but to just short of $2bn in capital spending. Amazon is seeking the most increasingly employees want beneficial package of tax

Spring 2018 30 What tech companies want

1. The US Midwest However, Facebook is Indianapolis and Columbus, believed to be scouting out Ohio, found their way on to 450,000 sq ft at AIB’s campus Amazon’s top 20 shortlist, headquarters in Ballsbridge. If surprising some observers who confirmed, this would be the first hadn’t ranked them as real tech substantial tech move to the city’s targets. But according to Bert southern business districts. Sperling at location finders Sperling BestPlaces, it shouldn’t 3. Manchester have shocked anyone. Like its US parent, Amazon UK has “Places like Columbus and its own HQ2 requirement. The Indianapolis are receiving online giant is considering attention because of their creating a 900,000 sq ft affordability (both commercially campus-style office hub in and for employees) and a steady Manchester’s Northern Quarter stream of new graduates from – if the deal comes off as large, well-regarded universities,” expected, it will signal the he says. moment when Manchester “Current technology hubs such moves from tech contender to as San Francisco, New York, Los serious tech player. Angeles, Seattle, and Boston are Hermes’ NOMA development straining to provide commercial is regarded as the likely winner of space and housing for the the campus, although the Ask/ growing tech industry, and are Patrizia First Street scheme to the looking for affordable locations south-west of the city centre is for new offices.” also in the running for Amazon’s Time-zone differences and initial 90,000 sq ft toe-in-the- rising costs are forcing US water. businesses to reshore from Like the Midwest cities of the overseas centres such as US, Manchester has large, Bangalore and Hyderabad. well-respect universities and a “Locating these new tech deep pool of young graduates. resources in the Midwest and Will Brexit choke off a Maryland in Washington DC, the current rumoured front-runner in the HQ2 race other affordable parts of the US Manchester tech renaissance? allows these consulting groups to Cambridge University economist benefits, credits and other able to build a critical mass provide reasonably priced Michael Kitson says it might. incentives, but we don’t of workers is just as important services while still offering “Despite globalisation, location is believe that this will be a key as the ability to keep those well-paying jobs to their important as close proximity to determining factor,” he says. workers, which is a function employees,” Sperling says. “It’s universities and other high-tech “Lavish enticements are nice, of worker satisfaction and no exaggeration that a small businesses can encourage but nothing is more important fulfilment at home and at two-bedroom bungalow priced collaboration and innovation. If than finding that special spot work,” she says. at $1.5m in San Jose may be the UK is not in the single market, that will help Amazon grow Even big-picture politics found in Columbus or many firms may consider and thrive for the foreseeable doesn’t make much Indianapolis for well under relocating or moving some future.” difference, she adds. $100,000.” activity to the EU to maintain ease Sperling’s tip is to keep “Brexit and the impact on of access to the European your eyes on the west of the tech companies is much less 2. Dublin market,” he warns. Washington DC metro area. important than it would be Dublin has Goldilocks appeal “Land is plentiful, and it is for companies in the financial (not too big, not too small) of 4. Berlin close to the major Dulles sector, for example, given a kind that many tech giants Berlin’s cool reputation – International Airport – and passporting regulations. love. It also has a youthful and combined with its EU status – the nightmarish DC commute “That being said, any well-educated demographic, makes it a formidable rival to is sidestepped by staying changes in immigration and won’t be leaving the London, as a slew of new arrivals away from the city centre,” policy have the potential to EU any time soon. Dublin is testify. Already this year Bosch he says. make building a skilled ranked ninth in the World has chosen Berlin as the HQ for Savills’ New York-based workforce that much more Economic Forum’s Global its new internet-of-things chief economist, Heidi challenging.” Talent Competitiveness Index operation. At around 120,000 Learner, agrees that the It seems that the more (London is 14th). sq ft it isn’t huge – but it is a huge fundamentals of location traditional location criteria – The Silicon Docks of central sign of things to come. choice don’t change much commuting times and land Dublin remain the top tech Meanwhile, Samsung Next has – whether it’s Amazon, or your prices – matter as much to location, with Google adding a chosen Berlin over London, local digital start-up. tech HQ searchers as to third building to the two already claiming the UK capital is “not a “Tech companies want anybody else. claimed at Bolands Quay: a total fun place to live unless you are access to talent, and the ability of 257,000 sq ft. really rich”. to retain their talent. Being David Thame

Spring 2018 31 ANALYSIS I ALTERNATIVE CBDs

A NEW START FOR CBDs? Occupier needs are changing. Millennials want flexible, co-working and collaborative workspaces in creative, dynamic urban areas. So does this mean CBDs as we know them are dead, or do they just need reinvention? Savills’ head of world research Yolande Barnes considers the alternatives

Spring 2018 32 he way we live and work small cities will see more in cities is changing. This choice of small CBDs, urban Tis, in turn, changing the quarters in which people will geography of real estate. set up different businesses. Investors need to understand these changes or be left A short history of the CBD with underperforming and The CBD is a term most obsolete stock in the wrong property people take for place. They also need granted. It’s the obvious and to consider whether the most desirable place in a city traditional office stock in to locate business premises established central business and it’s where you’ll find other districts will stand the test of enterprises to support your time. business or service. People want to work in But CBDs have not always cities and towns, not out of been the location of choice town business parks. They also for every office occupier. want to live, play and visit in Many global cities which now the same cities. So what we’re have varied and extensive seeing is the emergence of CBDs suffered city flight in many new CBDs; a plethora of the 1950s, ‘60s and ‘70s. They urban neighbourhoods where watched their CBDs fade as people can do all these things businesses moved upstate and and which provide a choice out of town to purpose-built of workplaces for workers and business parks with modern their employers. facilities. This left some The emergence of these downtown areas in Europe new CBDs has led some and North America no-go urbanists to coin the term areas, especially after dark. “polycentric city”. The single Downtown LA, for example, big, mono-use CBD may be was considered highly a thing of the past but even dangerous by the mid-1980s.

Spring 2018 33 ANALYSIS I ALTERNATIVE CBDs

Mono-use office blocks and no night-time economy left the area to gangs and drug dealers after office hours. This was a pattern repeated throughout many late 20th century CBDs dedicated solely to daytime workspace. The globalisation of financial services and a more enlightened approach to city planning started to turn this around in the lead-up to the millennium. The urban renaissance of the 1990s was seen across the developed world. Capital and business were repatriated to the CBD so that deserted downtown Alternative CBDs districts became lively and safe again. Mission, San Francisco New development in the The new….Financial late ‘80s and ‘90s provided District large new prestigious offices The vibe Creative, edgy, fit for accommodating, late-night with a Latin moving and trading financial American twist capital, as well as housing Best for Tech start-ups a host of other associated looking for a cheaper business services. Household alternative to SoMa flight was reversed and Who’s already there? people started moving back Small Batch, Crowdfunder, into the city to live as well as Posterous work. Brooklyn, New York Phase two of the urban The new….Midtown renaissance Manhattan The urban renaissance has had The vibe Industrial two phases. The first ended warehouse district fuelled in 2008 with the demise of by lots of good coffee. some big financial institutions Best for Another and the weakened growth of alternative CBD financial services in the wake dominated by tech of the global financial crisis. companies - though the Meanwhile, an unnoticed size, diversity and maturity second phase of urban of the Brooklyn market renaissance had already means it is not limited to begun. It had its origins start-ups with larger not in the rise of financial scale-ups now based here institutions, but in creative and Who’s already there? Etsy, tech industries in the dotcom Amplify, Kickstarter boom of the millennium. As the dominance of financial Shoreditch, London institutions receded – even The new…Square Mile in cities like New York and The vibe Factory chic with London – new, innovative and a surrounding different tech and creative infrastructure on the up – enterprises started to drive city Appear Here’s economies across the globe. transformation of Old These companies were Street station is a case in frequently the fastest growing point sectors of local economies. Best for High speed Importantly though, the studio internet, independent start-ups and scale-ups that retailers, creative office characterise the early stage of spaces down cobbled their growth didn’t want the back streets marbled halls built in CBDs Who’s already there? during preceding decades. Shoreditch House, Adobe, Rather, it’s the fringe locations Second Home away from the traditional

Spring 2018 34 Mission district in San Francisco New York’s Brooklyn is dominated by tech

Shoreditch, London, is famous for its “factory chic”, and up-and-coming infrastructure

Spring 2018 35 ANALYSIS I ALTERNATIVE CBDs

Alternative CBDs

Pigalle, Paris The new…La Defense The vibe Once (and arguably still) a predominantly seedy district known for sex shops, now SoPi (South Pigalle) is adding a string to its bow as one of Paris’s “urban creative tech quarter” now the Best for Retail and leisure occupiers and small scale creatives Who’s already there? Le Pigalle hotel Pigalle, Paris, was once a seedy district Kreuzberyg, Berlin The new…Mitte The vibe Old school anti-establishment. Punk culture, artists, students Best for Independent creatives. There is resistance to large corporates here as demonstrated by the reaction to Google’s desire to expand in the district as campaigners have claimed the resulting gentrification would “ruin the area forever” Who’s already there? Bonativo, CapsuleFM, Betahaus

Fitzroy, Melbourne The new…Hoddle Grid The vibe Laid back and bohemian, the city’s street art capital is a classic case of where the artists go, the tech set follows Best for Media, design agencies and web developers Who’s already there? Resolution Media, Digital Bridge

Spring 2018 36 Kreuzberg, Berlin, is famous for its punk culture and art students

CBD that have thrived. It’s goose. Retaining authenticity, the number one factor in the buildings, often heritage keeping existing communities leasing decisions. Getting the buildings, previously thought and businesses in place is an neighbourhood and working inappropriate or obsolete essential part of enabling a environment right is. during the first phase of regenerated area to retain its Little wonder then that the urban renaissance, that came original appeal. popularity of locations for into their own in the second businesses is shifting. In a phase. Demand for flexible, People power world where corporations no collaborative co-working In the new working longer have the hiring power space in basic buildings with environment, people have to that they once had, investors a great street scene has never take centre stage. The highly must reconsider the definition been higher. It is this that has skilled, footloose millennial of an “institutional covenant”. shifted the gravity of CBDs, workforce has a world of Some prestigious corporations and even created new ones. possibilities to choose from may prove to be less long- and is more likely to make a lived than upstart new tech Implications for investors decision on the basis of city companies. Investors need to This renewed popularity quality than on a company understand these shifts when of old, undervalued name. The needs and wants selecting stock, which is likely neighbourhoods with their of real estate occupiers are to maximise net income and independent shops, cafés, therefore paramount. minimise capital depreciation restaurants and business Corporations have to in future. premises is now a global consider carefully not only the This means understanding phenomenon. It is associated city that they locate in but also occupiers. Communication with the growing importance the neighbourhood. Their aim between property professionals of the millennial generation is to make sure their location in premises management, in the workforce, with and their building will attract especially the management of globalisation, changing the workforce they need. It co-working and co-creation technology and new social is no surprise therefore that spaces, and occupier services norms. HR departments are now with those in investment and The challenge for the real heavily involved in making finance is essential. estate industry when investing the real estate decisions for The CBD is far from dead, in and developing these their companies. The cost just a bit different to what it Melbourne areas is not to kill the golden of premises is no longer used to be.

Spring 2018 37 IN DEPTH I SPAIN

‘Y VIVA ESPAÑA’ Recovery from the decade-long financial slump of 2008 is well under way on the Iberian peninsula with tourism and retail sectors leading the way – and investors are increasingly primed to leap in

Spring 2018 38 Spring 2018 39 IN DEPTH I SPAIN

Samantha McClary confidence to allocate a rising star in Europe and our Deputy editor/head of content significant resource to our presence there benefits hen Citygrove strategic growth in the clients as they capitalise on Securities opened an region. Spain’s recovery, in cross-border opportunities. Woffice in Spain in particular, gained momentum Foreign investors have 2000, people wondered what in 2014 when the opportunity increased year on year and the UK-based developer was Mark Ridley, chief executive, funds returned. US funds accounted for more than 63% doing. Chairman Toby Baines Savills UK & Europe went on to spend almost of buyers in Spain during 2017. jokes that he committed to the €2bn in 2016 and a further Likewise in Portugal, country because he loved the Why Spain? €2.4bn in 2017. cross-border investment tapas and the sunshine, but its Today, with office demand accounted for 64% of the recent sale of the 350,000 sq ft Establishing Savills Aguirre having returned and a lack of market in 2017, totalling about Terrassa Placa in Barcelona to Newman at the end of 2017 development, the current and €630m, with buyers from UK, Munich’s biggest pension represented Savills’ largest forecast rental growth puts Spain and US, and growing fund, Real I.S, reveals the acquisition in continental Madrid and Barcelona among interest from France and company may have been a Europe so far in its history. Europe’s top performing Brazil. little bit more savvy than that. Our team in Spain and cities. This has encouraged a Portugal’s economy To say that Spain was hit Portugal grew from 100 to further wave of overseas and continues to benefit from a hard by the last recession 500 people through the domestic capital to flood into growth in tourism, and the would be something of an merger and, while not an the market. Office yields hit country is becoming a key understatement. Its entire equal match on size and scale, 3.25% last year in Madrid, destination on the map for economy had been built on it is a perfect balance of talent lower than the record low of tech companies. We expect real estate and when the and culture. 4% seen in 2007, putting the investors to target the wheels fell off, they really fell It is a mark of how far Spain city on a par with London’s undersupply in student off. In 2007, some 2.7m Spanish has come since the global West End. housing, senior living and workers – or 13% of the total financial crisis that we had the For Savills, Spain represents healthcare, in particular. workforce – were employed

Spring 2018 40 across the country to take advantage of space-hungry retailers. The pair have recently agreed a deal with Banco Santander to buy a plot of land in Santander that the bank repossessed during the recession. They plan to develop 250,000 sq ft of retail on the site. Similar plans are in motion for a site in Marbella, where Citygrove soon hopes to have 100% control. But while having a swish new shopping centre may be easy to sell to institutions, funding development is another story. “It’s a bit like 2012 in the UK,” says Baines, “you can get zero Terrassa Placa, Barcelona bank leverage over there [Spain] now so you have to volumes since 2008 last year. the country since 2006. buy sites for cash and then Investment increased by some It exchanged on the pick up a construction finance 45% to €14bn in 2017, driven shopping park just days contract. Leverage is not going largely by retail and hotel sales before the 1 October to come back. It is still so raw – each delivering around referendum vote and while out there. The banks are not €4bn of that total. That boost in the pension fund had every going to let anything like that investment came despite a right to wiggle on its price, it happen again. We get lending pause after October’s didn’t, reflecting its belief in once we have taken all the risk.” referendum. the strength of the rebounding Both Citygrove and Baines says there has been a Spanish retail market. Burlington seem happy to remarkable parallel with the UK “No one has built anything shoulder that risk, however. in terms of Spain’s recovery, or refurbished anything for 10 “For me, it compensates the albeit one that is lagging five years, so when you build humdrum of the market place or six years behind. something new the demand in the UK at the moment, He says the recovery has from the institutional pension which is overshadowed by the been led by tourism, with fears funds to buy is very strong,” discussions about Brexit. Spain over terrorism in some regions says Baines. has not been 100% easy of the Mediterranean leading Buying newly built assets, because of what happened in Barcelona is ready to bounce back

KAROL KOZLOWSKI / IMAGEBROKER/REX/SHUTTERSTOCK / KOZLOWSKI KAROL more people to choose Spain particularly in the retail sector, Catalonia, but we are not for their holidays. And then, of is a no-brainer, adds retail worried. It is not like Brexit, in the construction sector. But course, there’s Brexit. He says expert Malcolm Dalgleish who which seems to be permanent. when the crash hit, work the German funds would have with investor Eli Shahmoon This has been a hiccup for the stopped and remained stalled been buying more in the UK runs Burlington Ventures, country.” for several years as the banks, had it not been for the which is partnering with Dalgleish agrees: “Spain has which had been lending at a uncertainty caused by Britain’s Citygrove on its Spanish a can-do economy at the ridiculous rate, tried to recoup exit from the European Union. investments. moment. They just want to get some of the losses from the Institutions are now being “Spain has been in the on and do it. It does have a €175bn ($215bn) of troubled tempted by a recovering Spain. doldrums for so long that very tight planning regime, assets they now had on their Real I.S is one of those there is now a lot of but once you get through that, books. funds. Its acquisition of opportunity. There has been you can build and move very But after a decade in the Terrassa Placa, which very little development so it is quickly. It is a vibrant market. doldrums, Spain is looking completed in December 2017, crying out for new ideas and The difference between it and attractive again and while last signalled its return to Spain new schemes. Retailers are not a lot of other countries is that year’s independence vote after an absence of several being provided with the space they have an oversupply of shock has caused a blip in the years. Although a purchase they need. Modern retailers space; in Spain there is an recovery in the country’s price for the shopping park require modern space and undersupply. If you can biggest market, the outlook is has not been disclosed, Real that is what we are there to provide what is demanded decidedly sunny. I.S is understood to have paid provide,” he says. then you’re on to a winner.” Spain recorded the biggest a yield of around 4.8% – the With Citygrove, Burlington Investors, however, will uptick in real estate investment keenest retail yield achieved in Ventures is expanding further need to keep an eye on the temperature of the Spanish market. It may always be fun in Spain has been in the doldrums for so long that there is now a lot the sun, to borrow a phrase of opportunity. There has been very little development so it is crying from Citygrove’s Baines, but too much demand can out for new ideas and new schemes sometimes lead to Malcolm Dalgleish I Burlington Ventures overheating.

Spring 2018 41 IN DEPTH I INDIA THE BUYING GAME International retailers have flooded to India before, only to hastily retreat. Will this latest push into the subcontinent be more permanent? Helen Roxburgh reports

Spring 2018 42 ast year, India knocked China off the top spot as Lthe most desirable retail market in the world. A more favourable foreign investment environment, strong economic growth and a consumption boom were all factors cited by management consultancy AT Kearney in its Global Retail Development Index. But there is a sense of déjà vu around this revelation. In 2007, India saw unprecedented retail investment and analysts talked about the country overtaking China’s runaway growth. But after the 2008 financial crash, the market slumped. In the years that followed, many brands explored the market without making a successful entry. Some, such as Forever 21, have entered and exited several times within the past decade. Others have abandoned the country completely, including French supermarket Carrefour. Will it be a different story this time around? Changes to foreign investment regulations mean brands can invest directly into the retail market, while a growing number of professional mall developers and investors are bringing quality real estate space to market. GDP is forecast to grow by 7.4% this year – and by 7.6% in 2018 – and the retail market is expected to almost double in size by 2020, growing to $983bn, up from $553bn in 2016. “India’s retail sector offers unparalleled promise,” says Nielsen India director Peeyush Bajpai, adding that there are 400m urban consumers across 8,000 towns and cities – most vastly undersupplied in retail. Along with a stable government, new tax regulations are expected to drive consumption. And there is a long list of retailers coming into or expanding in the market hoping to take advantage of that. H&M was one of the first to make the move, entering the market in 2015 with 100% direct foreign ownership. The fashion retailer now has 21 stores in 11 cities, Marks & Spencer is now well-established in India

SINOPIX/REX/SHUTTERSTOCK and helped contribute to a

Spring 2018 43 IN DEPTH I INDIA

Muji now has two stores in India

69% year-on-year growth in while Chinese retailer Xiaomi branded apparel sales across intends to open a series India in 2016. of stores, and sportswear company Puma is looking International investment for government approval to Other international brands that operate wholly owned stores have entered India in the past in the country. two years include Muji, Under Meanwhile, UK retail stalwart Armour, Ikea, Kate Spade, Topshop has been rumoured Banana Republic and Coach. to be looking to open in the According to CBRE, there Indian market for several years. were 70 new entries or In 2015, the high street retailer expansions by global and launched online sales with domestic brands during the India’s largest e-tailer, Jabong. first six months of 2017. com, taking a similar approach

British retailers have been to China, where it launched a PRESS/REX/SHUTTERSTOCK ROBIN/ACTION UTRECHT, steadily expanding their digital store on Shangpin.com. store networks, mostly in But to date, the brand has partnerships in India too. UK not opened physical stores in group for luxury products footwear store Pavers England either market. globally, accounting for 32% has expanded across India “Each arrangement – direct of luxury sales in 2017, since launching in 2008, and entry, partnership, franchising according to Bain & Co. now has 40 stores in a joint – has its own benefits and The Indian luxury market venture with conglomerate disadvantages, so it depends and its broader economy is at Foresight Group. on the brand’s individual Marie Hickey, a different stage of Marks & Spencer, which strategy and what it is aiming director of research, Savills development, with Indian made a high-profile for,” says Rajneesh Mahajan, luxury spend only 7% of that withdrawal from China in 2017, chief executive of Inorbit The goal is global of Chinese nationals. Yet the has 56 stores in India and five Malls. “Direct investment gives propensity for growth is lingerie-only stores. Through you an opportunity to scale up India offers significant significant and is luring a a partnership with Reliance operations very quickly. What growth opportunities for number of luxury brands to Retail, the brand developed Zara has opened in six years, luxury brands but will the establish a presence in India. a domestic supply chain and H&M has been able to open real winners be the global The number of new saw sales increase 21% in the in less than two by operating “destination” cities? stand-alone luxury store first half of 2017. directly.” From a luxury retail openings* in India nearly Iconic British toy chain Brands already in the market perspective, India has often doubled in 2017, increasing Hamleys also entered India have been consolidating since been touted as the next from six to 11 – with Delhi with Reliance, and now has the new FDI rules. Sportswear China. Both countries have leading with eight new more than 30 stores, making brand Adidas has been given large populations and openings, followed by India its biggest market in state approval to open its own rapidly expanding middle Mumbai with two. In the case terms of store portfolio. And stores directly in the country, classes with ever more of Delhi, key new openings it plans to double its store and has reduced its franchise discerning tastes and rising have included Coach, Hermes portfolio within two years. partners from 500 to around consumption levels. and Longines. Japanese retailer Uniqlo is 70. Earlier this year, fast food Chinese consumers are now While India offers huge understood to have plans to chain McDonald’s terminated the biggest single buyer potential, there remains a launch independently in India, franchise agreements for 169

Spring 2018 44 stores. Other retailers are in of retailers surveyed did not similar negotiations. meet their intended growth Amid consolidation by plans in India, largely because international brands, there of infrastructure challenges, is also growing investment limited access to capital and a from international institutions. shortage of talent. The report In August, Singaporean warns the retailers met “myriad sovereign wealth fund challenges of execution in an GIC announced it was environment where quality investing $1.4bn in its second of real estate, talent and joint venture with Indian infrastructure were not keeping developer DLF to create pace with the expansion plans a portfolio of office and of the retailers”. retail assets. This followed “I started making a list of an April announcement by international brands that have the Canadian Pension Plan come to India and then exited Investment Board, with plans again, and it reached more for a $454m joint venture than 100,” says Inorbit Mall’s with Phoenix Mills to develop Mahajan. “Brands that come to and operate retail-led India and try to replicate what developments across India. they have done elsewhere Blackstone’s Indian retail fund, will fail; those that evolve and Nexus Malls, has 4.5m sq ft of develop with India succeed. retail space, purchasing the “If you have a 21,000 sq ft Elante Mall in Chandigarh in store in Europe and want to July for an undisclosed sum. come straight into India with a 21,000 sq ft store, it doesn’t Constrained supply work. Marks & Spencer started But there is still a significant at 5,000 sq ft and grew lack of top-grade space. upwards. There are two issues Organised retail in India that brands in India have to currently accounts for only face. One is the pricing issue 8% of the market, meaning – it has to be 20% or 30% there is severely constrained cheaper than in Europe – and supply. According to JLL, there second is the store size.” was a net negative supply of To understand the retail space for the first time complexities, many brands still in 2016: while 13 malls were choose to work with a partner. Hamleys, Kate Spade and Ikea have all established a presence

NEIL RASMUS/BFA/REX/SHUTTERSTOCK NEIL completed, 15 were closed The differences in religion, or withdrawn. taste, wealth and culture across Industry experts say the India’s vast geography make number of challenges related outbound travel was delay in Topshop opening is expert knowledge invaluable. to infrastructure, lack of quality estimated to total 25m trips largely a result of difficulty in “There are certain values retail space and access to talent in 2017 – one-sixth of that finding suitable space, while that really resonate with that are set to constrain store recorded for Chinese Uniqlo has reportedly already your consumers, and the expansion over the short to nationals (145m trips in 2017), delayed its Indian entry retail business needs to be medium term. As a result, new the World Tourism because of the unavailability connected to those values,” store acquisitions that help Organization forecasts this of quality retail space. says Arvind Varchaswi, improve brand awareness and will double by 2020. In light “The biggest obstacle to managing director at analyst allow for greater engagement of current preferences, and growth is the huge imbalance Sriveda Sattva Private. with customers, meaning a Chinese traveller trends, we between supply and demand But regardless of the move towards directly expect this will translate into in retail real estate,” says Rohit challenges, the opportunities operated stores, will be seen increased overseas luxury George, managing director in India’s retail industry are as key to capturing domestic spend by Indian nationals, at Virtuous Retail South Asia, immense. The UK has been the spend and, perhaps more albeit not to the same scale the retail investment arm of largest G20 investor in India importantly, outbound spend. witnessed among Chinese Xander Group, which formed over the past decade, and Approximately half of all travellers. Perhaps the a $450m joint venture with initial talks this year suggested Chinese luxury spend takes immediate winners of the APG Asset Management in the post-Brexit situation could place outside its domestic growth in Indian luxury 2016. bring larger engagement market – in response, in part, spend will be those markets “There just hasn’t been a on trade, plus discussions to higher domestic prices and that attract significant big enough supply of new over a free trade agreement authenticity concerns. numbers of Indian tourists. real estate projects over the between the two countries Likewise, the majority of past four years, and we have (India is also the third-largest India’s high-net-worth *Note: excludes relocations, seen some places where rents investor in the UK). individuals prefer to shop reopenings as a result of have risen as high as the very For now, those moving while travelling overseas as the refurbishments and top retail locations across the into the market need to prices are often 10-20% lower store-in-store openings in world because of this.” remember the opportunities than at home. While Indian department stores PwC study The Promise while keeping a long-term of Indian Retail found 90% perspective.

Spring 2018 45 WHO TO KNOW I THE INVESTOR

Spring 2018 46 SOWING SEEDS FOR GROWTH Mapletree, the property arm of Singapore’s state investment fund Temasek, has splashed £1.1bn in the UK since entering the market in 2015. Regional chief executive, Europe and USA, Michael Smith, outlines what’s next on its wish list

Louisa Clarence-Smith independently run and will the back of that acquisition, Senior reporter happily compete on deals, but that’s a business that we ingapore is as famous for says Smith. Good to know if would love to bring more into its strict laws as it is for its you have the opportunity to Europe and the UK,” says Senviable wealth. If you meet the investor, which is Smith, who typically alternates want to avoid making a faux seeking to further establish its working weeks between New pas in the real estate sector, UK brand and presence and is York and London. just don’t confuse the targeting the UK and Europe “It is a global provider of government’s sovereign wealth for a potential major corporate housing. It’s a fund GIC with its real estate investment play into the 50-year-old business so it has Louisa Clarence-Smith investment arm Mapletree. serviced apartment and data got very good connectivity Senior reporter “People ask us about GIC centre sectors. with the US corporate America. and the relationship but we As US corporate America don’t look at them,” says New year, new acquisitions expands, it’s a great brand to regional chief executive for Since first entering the market expand as well.” Europe and USA, Michael in 2015, the property arm of “I was in Dublin earlier this Smith, in his first UK interview. Singapore’s state investment week – there doesn’t seem to “GIC is the sovereign wealth fund Temasek has quietly be a lot of corporate housing fund of Singapore tasked with amassed a S$2.5bn (£1.4bn) UK or serviced apartment-type managing the country’s property portfolio of regional offerings and you’ve got foreign reserves. So they have offices and student housing. Google and Facebook and a very broad remit where they Last year, Mapletree everyone else setting up shop invest in fixed-income acquired US-based Oakwood there. So I think that sort of instruments or the equity Worldwide, the world’s largest opportunity is real for us.” market or real estate. We are provider of corporate housing not a sovereign wealth fund, and serviced apartments. The Opportunity knocks we have never claimed to be Oakwood business has 1,359 Data centres are also among a sovereign wealth fund. We employees in the US and some new sectors in Europe where are a real estate developer, presence in the UK, with a Mapletree hopes to be investor and capital manager. London office at 40 Clifton acquisitive. In October, We stick to our tasks and we Street, EC2. “We’ve got more Mapletree Investments go off and do it.” Americans now in Mapletree entered into a joint venture Regional chief executive Michael Smith The two investors are than we have Singaporeans on with Mapletree Industrial Trust

Spring 2018 47 WHO TO KNOW I THE INVESTOR to buy 14 data centres in the US from Carter Validus Mission Critical REIT for S$1bn.. “As the world becomes more technified, we think there is a good business in owning the bricks and mortar of data centres,” Smith says. “It is a more difficult, more fragmentally owned market, but it is a great market for us so we are very focused on trying to grow that as well.”

UK commitment Smith, who joined Mapletree in 2017 after 10 years at Goldman Sachs heading the Mapletree Business City Green Park business park, Reading South East Asia investment banking business as well as its Asia Pacific real estate business, says Mapletree aspires to grow its UK portfolio, which comprises business parks, offices and student housing in regional cities. The company also has representatives in Manchester and Green Park in Reading, the 1.4m sq ft business park it acquired from Oxford Properties in 2016 for £563m. The attraction of the UK is how well the opportunities here align with the company’s five-year plan. This runs until The 1.7m sq ft business hub at Mapletree Business City March 2019 and prioritises “quality income-producing more sizeable business to “If we were to serve an across 17 countries is a unique assets with long weighted augment what we have Amazon in Asia and we want opportunity. So it may not be average leases to expiry which already got in Asia,” he says. to serve them in the US and opportunities of that size, but are anchored by a strong Mapletree develops its own Europe, then we need to have the overarching thematics tenant base, to give us stable warehouses in China and exposure here,” he says. around the sector are still very and growing yields.” currently owns more than 150 Another Logicor-sized encouraging with e-commerce In Europe, the only other logistics assets across Asia opportunity is unlikely to and everything else that’s country where it is currently Pacific. A European logistics surface in the near future, but happening in the world. active is Germany. presence is integral to its Smith says Mapletree could “Of everything that “We have been looking [at strategy of attracting loyal look to build a similar platform Mapletree is involved in, that opportunities in other custom from major occupiers organically by acquiring larger is probably the one that European countries] and we such as Amazon through a portfolios and managing them. resonates with us and is are not averse to any particular global portfolio. “To have 624 warehouses associated with us the most. So country, it’s just what meets we very much believe in the our business plan and our sector and think that over time investment requirements,” says What is Mapletree? there will be a lot more Smith. opportunities for people like Singapore-headquartered Mapletree is a property us to get involved.” Logistics ambition development, investment and capital management company. Mapletree demonstrated its It is 100% owned by Temasek, the Singapore government’s Student housing brand ambition last year when it investment arm. However, it has an independent board of Another area of expected made the shortlist for the directors, which approves its five-year plans without input growth in the UK is in student €12.3bn (£10.5bn) sale of from Temasek. It is also independent from Singapore’s $350bn housing, which Mapletree Blackstone’s European logistics sovereign wealth fund GIC and has been known to compete entered in the UK in 2016 with business Logicor. It missed out on deals. the £417m acquisition of the on Logicor to China In some instances, Mapletree’s cost of capital is less and it 5,500-bed Ardent portfolio of Investment Corporation, the can go after deals more aggressively as it has lower return 25 buildings in cities including Chinese sovereign wealth targets than GIC. London, Edinburgh and fund. But Smith says it remains “We are quite separate organisations and if we are Manchester. in the market for a mega interested in something and they are interested in something The firm believes the UK will logistics platform. then we may look at it separately,” Smith says. continue to be a key market “We would want to have a for Asian students studying

Spring 2018 48 Mapletree’s portfolio As at 31 March 2017, Mapletree owned and managed S$39.5bn of office, retail, logistics, industrial, residential, corporate housing/serviced apartment and student accommodation properties. Its UK portfolio totals S$2.5bn. Mapletree manages four Singapore-listed real estate investment trusts and six private real estate funds that hold a diverse portfolio of assets in Asia Pacific, the UK and the US. The group also has a network of offices in Singapore, Australia, China, Hong Kong SAR, India, Japan, Malaysia, South Korea, the UK, the US and Vietnam.

capability that’s being built out across greater London, plus it gives us a yield pick-up that we wouldn’t otherwise get in the city.” Mapletree continues to look Lightfoot Hall student accommodation in Chelsea, SW3 at regional office opportunities. “Anything that abroad who it hopes to attract to take on the operational out-of-town office complex becomes available of scale in with its Mapletree-branded aspect of the business if its that has attracted tenants such particular normally gets shown properties. portfolio achieves an as Google and Deutsche Bank. to us, so if it meets our “We are still very optimistic, appropriate scale. “We understand that requirements we will keep very keen on this market,” says Up until March this year, business very well,” says looking,” Smith says. Smith. “There are some of the Mapletree owned 100% of its Smith. “We don’t own Could 2018 be a good time best universities in the world portfolio, but it has since skyscrapers, [or] equivalents for Mapletree to exit some of in the UK if you look at all the reduced the ownership of its in the heart of Singapore, and its regional assets? “Possibly,” university rankings. There are assets via syndication to 33%. I guess it is that sort of says Smith. “We are not under 1m mainland China students However, it continues to mentality.” any time pressure but if we who are being educated in manage the assets. This is a As part of its strategy of thought we had the right scale Europe and the US, so our typical level of syndication for partially exiting assets via and the right offering we opportunity is to build a brand the company. syndication, Mapletree is would consider it. There’s in Asia that is associated with Mapletree’s business model yield sensitive. nothing specifically planned quality universities and quality as a capital manager is to “For us to buy a 3% yield in around it yet, but it’s a good student accommodation.” reduce its ownership of assets property with an expectation scale, it’s £940m of offices, so Smith’s biggest concern via syndication rather than exit to syndicate it to people who that’s something we could do.” about the UK market is the completely. “That is likely to want yield, it’s going to be a Having doubled its assets availability of end product. continue,” says Smith. “We use challenge for us,” Smith says. under management for every “It’s a much smaller market our balance sheet to buy “So the regional markets five-year plan it has had since than the US, and there is a lot assets like the commercial that are generally more 2000, one thing to be sure of of capital chasing limited portfolio of student housing higher-yielding, they have a is Mapletree’s continued opportunities,” Smith says. and then we will syndicate that yield pick-up versus central presence in the UK. Brexit and “That has brought prices up into a fund.” London and still very good political uncertainty are not a and cap rates down, so it fundamentals.” He cites major concern. Smith thinks would have been better to be Regions versus London Mapletree’s acquisition of the sectors it is in will be a buyer three years ago.” Smith attributes Mapletree’s Green Park as an example of a resistant to external shocks. Mapletree’s 12,000-bed UK appetite for UK regional offices property that demonstrates “Fortunate or otherwise, we portfolio is managed by to expertise and yield. The the company’s interests. think our verticals are pretty, operator Home for Students. company’s global HQ in “It’s got a great register of not totally, economic and But Smith says there could be Singapore is at Mapletree tenants, it’s in a great location political proof but they are at an opportunity for Mapletree Business City, a 1.7m sq ft with the infrastructure least resilient.”

Spring 2018 49 WHO TO KNOW I THE PROPTECH INVESTORS

Spring 2018 50 OFF THE WALL This time last year, no one had even heard of Fifth Wall. Now, after a $212m raise, the proptech fund’s co-founders, Brad Greiwe and Brendan Wallace, have become key players in real estate tech investment

Emily Wright earmarked for proptech and Features and global editor proptech alone. But Wallace he property sector is not and Greiwe do not really see it really one for overnight that way. If anything, they can’t Tsensations. But there is quite believe they managed nothing quite like a stealth to get in before anyone else. launch to keep everyone on “We were – and still are – their toes. Brendan Wallace genuinely puzzled as to why and Brad Greiwe should know. there were no funds already They did just that when they focused on this category,” says introduced Fifth Wall, the Wallace. “There are maybe 10 world’s first pure real estate venture capital funds focused tech fund, to the market in on education technology, May 2017 with a $212m (£163m) which has produced a raise from the off and a buy-in hundredth of the enterprise from some of the biggest value of real estate tech. With names in the industry, including real estate, you have this CBRE, Hines and Prologis. enormous industry – it is the The launch of the Los largest in the US – at an early Angeles-based fund saw the stage of tech adoption and no two former Blackstone dedicated funds. We saw a associates being hailed as huge opportunity both in pioneers – the first investors terms of scale and timing.” brave enough to raise a Speaking of timing, the significant pot of cash stealth launch was not just for

Fifth Wall co-founder Brad Greiwe

Spring 2018 51 WHO TO KNOW I THE PROPTECH INVESTORS show. What makes this fund THE FIFTH WALL FUND industrial, hospitality and for the conversations we had different is the fact that it is PROPERTY BACKERS multi-family (better known as with our anchors, we had underpinned by a substantial PRS here in the UK) with the many more with other real n CBRE – commercial agent chunk of property sector aim of raising capital from one estate owners and operators investment – around $120m of n Prologis – industrial of the biggest, if not the who viewed things differently the $212m total. This was a key company biggest, in each of those and who said: ‘Hey, you know part of Wallace and Greiwe’s n Lennar – housebuilder categories. The fact that what? This is just not what we strategy as they looked to n Hines – office developer neither of them were coming do, we are real estate guys.’ So mitigate risk by getting their n Macerich – mall owner to the real estate industry cold there was definitely evidence end users on board from the n Host Hotels – hotel owner helped considerably. of a more head-in-the-sand outset. They spent nearly a Wallace started his career in approach. The corporates we n Equity Residential – year securing support from apartment owner real estate investment banking brought to the table were the biggest real estate players at Goldman Sachs before therefore really quite curated. before approaching financial moving into real estate private They are the real estate institutions to raise the rest. equity at Blackstone. Greiwe companies that are well- So an overnight sensation than the status quo?’ In most started off at UBS before positioned with internal it was not. Careful and cases in this sector, the answer working in real estate private commitment and wherewithal meticulous structuring was is yes. So it is a relatively low equity for Tishman Speyer and to invest in technology.” required to create a model technical risk. But what you Starwood Capital in San As for the size of the fund, solid enough to guarantee that then have, on the other hand, Francisco. “Having connections the pair agree it is a hefty sum, any investment will double or is an enormous go-to-market to those executive teams was but are quick to point out that, triple that company’s revenue and distribution risk.” the big differentiator we had,” in terms of the sector at large, within 18 months. And therein lies the says Wallace. it barely makes a dent. Here, Wallace and Greiwe problem. The issue that has, The first two companies to “About $3bn (£2.3bn) went explain how they will be able most likely, put off many an sign up were CBRE and into just real estate tech last to deliver on such a bold investor or potential Prologis, followed by Lennar, year,” says Greiwe. “That does promise and reveal their future pioneering fund from putting the US’s second biggest not even include retail tech, plans in the US and beyond as all their eggs in the proptech housebuilder. Hines, the US’s hospitality tech, construction they set their sights on Europe. basket. How do you guarantee biggest office developer, tech. If you added all those uptake in a market so slow to followed suit and before too categories together, you are Uncharted territory adopt technological advances? long the real estate part of the probably talking about The Fifth Wall co-founders “You could have $100m and fund had been raised. And somewhere between a might have found it odd that the best product ever,” says Wallace adds that with the $5bn-$10bn space in terms of there was no other pure Wallace. “But if CBRE does not great and the good of the venture capital invested per proptech VC fund in existence adopt you, you are not going property sector behind them, year. So Fifth Wall, while we when they decided to launch. to be successful.” raising the remainder of the are the largest in our category, represents a very small percentage of the total capital We realised that if we could go out and raise capital from the biggest invested in this sector. buyers of real estate technology then we would know what they “As you can imagine, while it seems like an amazing would be likely to adopt and who they would be likely to partner with opportunity to say ‘Hey, I am investing in a company Brendan Wallace I Fifth Wall knowing that its revenue is going to double or triple in But they do understand why This is where he and Greiwe fund happened very quickly. the very near term,’ there is a this might have been the case. hope that Fifth Wall’s set-up “Once we had that strategic lot of hard work that goes into “The reason is probably two- will come into its own. “Our capital, the next $100m was structuring and engineering fold,” says Wallace. “First, there strategy was simple,” he says. raised very quickly. We were those deals,” adds Wallace. “So is the fact that there just aren’t a “We realised that if we could oversubscribed within months the short answer is yes, we lot of people from the real go out and raise capital from as the financial LPs, the think it is a large fund, but it estate industry who work in the biggest buyers of real endowments, the pensions needed to be.” venture capital. I am not sure estate technology then we could all see the advantage of why that is the case but the two would know what they would the industry backing.” Eyeing up the future sectors just don’t really overlap. be likely to adopt and who But how easy was it to get More than a year on from “The second, which is core they would be likely to partner that industry backing? To get those first negotiations, all eyes to our fund strategy, is that real with. We would therefore be major property companies to are now on Fifth Wall to see estate tech has a unique risk able to rapidly accelerate the part with massive chunks of what it will back. Around $80m profile. growth of our portfolio cash and effectively asking has already been invested in “The industry is such a late companies with that visibility them to take a punt on a fund companies, including software adopter, and because what and would have the ability to with a profile so unique that, leasing platform VTS. exists today is so low-tech, view the entire market from as yet, no one else had dared As for what is next, anything most ideas in this space are the perspective of what the attempt a launch? goes. “Based on where we are good ideas. By that, I mean incumbents want rather than “We obviously chose in the tech life cycle, I think you don’t face the same big speculate on what is going to partners who realised that everything is on the table questions that you would in be adopted.” technology was going to be a right now,” says Greiwe. most other kinds of venture The pair set about breaking major driving factor of their “Anything from workplace as a investing. Like ‘Does it work?’ the industry down into its business strategy,” says service, which can encompass ‘Can you build it?’ ‘Is it better major “food groups”: office, Greiwe. “But I would say that companies like WeWork,

Spring 2018 52 Brendan Wallace says the pair are still shocked no one had focused on the industry short-term rental companies, portfolios it makes it a lot He adds: “I don’t think we So we are definitely interested energy efficiency is obviously easier to scale businesses, like have a strong view on that yet, in what is going on in Europe. huge. And I think there are VTS, for example.” but from an investment And I think London is the most opportunities in and around perspective and from a important city, at least in terms capital markets. Where to now? capital-raising perspective, of providing an ability for Real estate capital markets The next step will eventually probably about a quarter of technology companies, are some of the largest in the be to launch another, our existing capital is especially technology world, so the fintech potentially even bigger, fund international LPs, some of companies in the US, to have companies that are tackling and there is growing interest which have quite a bit of real access to the European market. that space are really in investing outside the US. estate. I expect a decent “We have already seen that compelling on the lending In October last year the fund percentage, probably happen with VTS, which has and insurance sides.” made its first foray into Europe between 15-20%, of our first had a significant amount of As for the split between when it backed online retail fund will be allocated to success opening an office and residential and commercial, space platform Appear Here. international companies, operating it out of London.” Wallace says: “I would say, to “There is probably more probably primarily in Europe.” Last year, no one had heard date, our breakdown between innovation in the US as it Greiwe adds: “That interest of Fifth Wall. Now there are commercial and residential has relates to real estate tech, but and exposure will only grow. plans for a second fund, been about 50/50, not by we are actually seeing a lot of “Obviously, the anchors in international expansion and, of design, but that is just the way really interesting opportunities our LP base today have course, that all-important it has played out. abroad, both from Europe and significant international real guarantee cementing the “But there really are huge Asia,” says Wallace. “In terms of estate exposure, so I think we entire fund – a double or opportunities in commercial,” what that means for Fifth Wall would be doing ourselves a tripling of revenue within 18 he adds. “The dynamics of going forward, maybe that disservice if we were only months on every company it having these large corporates means we launch a separate focused on innovating in and invests in. is quite obvious. When you fund focused on European around the US because we have tens of millions of square corporate LPs and European need to provide technology LISTEN TO AN INTERVIEW WITH FIFTH WALL AND THE APPEAR HERE/FIFTH WALL feet that you can experiment companies. Maybe it means solutions that have PODCAST AT WWW.PODBEAN.COM/ on in our corporate LPs’ we do it in the same fund.” applicability across the globe. MEDIA/SHARE/PB-XFRAP-6F4247

Spring 2018 53 WHO TO KNOW I THE ARCHITECT

PRIME DESIGN Amazon, Microsoft, Samsung, Google; as far as occupier clients go, NBBJ has quite the roster. Seattle-based partner Ryan Mullenix explains the responsibility that goes with innovation and foresight

Emily Wright But it is its workplace world. And we can’t help but Features and global editor schemes that are most likely to have some of that culture yan Mullenix knows a make the headlines – thrust influence, or even force, our thing or two about into the public eye owing to a process.” Rpressure. A partner at mix of design innovation and Here he reveals how he NBBJ, considered one of the the high-profile nature of the copes with the “healthy chaos” most forward-thinking clients involved. that is part and parcel of architecture practices in the Clients like Amazon. NBBJ designing office buildings for world, he is under no illusions was the designer of its iconic the world’s most disruptive that with great innovation bio-domed headquarters, as businesses and why he hopes comes great responsibility. well as the firm’s more recent the days of “beauty contest” Based out of the firm’s Rainier Square project. This architecture are behind us. Seattle headquarters, he has $570m (£433m) scheme, the led projects for Amazon, second-tallest building in Pressure as a by-product Google, Starbucks and the Bill Seattle, became front-page As for that pressure, Mullenix and Melinda Gates news last year when it was says it is a natural by-product Foundation. On a broader revealed that Amazon was set of working at a legacy scale, NBBJ counts global to take all 722,000 sq ft of the practice, where partners, occupiers – Samsung, scheme’s office space despite designers and creatives in Microsoft and Alibaba, to name its plan to establish a second years gone by have built up a a few – among its clients. North American headquarters. reputation for being With 700 people working “We have been fortunate consistently groundbreaking out of 10 offices across the enough to work and spend a that the incumbent team must world, the firm has a lot of time with global uphold. reputation for delivering disruptors,” says Mullenix. “NBBJ is celebrating its 75th groundbreaking concepts “And I don’t use that term anniversary this year,” he says. across sectors including lightly. These are companies “That’s so many generations healthcare, sports, higher that, for better or worse, are that have passed through this education and science. shaping the future of our firm and the pressure is on to

Spring 2018 54 SEAN AIRHART SEAN

Spring 2018 55 WHO TO KNOW I THE ARCHITECT

Amazon’s Seattle “bio-dome” HQ

be this sort of firm. The Commercial buildings in the US have an average lifespan of fewer pressure of making sure these than 70 years. We are building these things out of concrete and high-profile buildings are right for now and will be right 100 steel and they have shorter lifespans than a frail, human body. years from now.”

Ryan Mullenix | NBBJ Public recognition The prominent nature of many stay at the forefront. It is a knee-jerk reactions,” says project lead or someone who of the schemes NBBJ takes on, pressure to never fall behind. Mullenix. “We have a rigorous is interning for the summer.” particularly in the corporate It is a pressure to be constantly process in place and we don’t It is this fluid approach to offices part of the practice, looking at who you are and grow for the sake of growth. the management of a design means that the firm’s work is what you are doing and where We do not set up offices that allows the firm to work often recognised around the you are heading. wherever a project might be. with such ambitious and world. As to whether the “We always want to be But working with the tech demanding clients. design intricacies and thought challenging the norm here companies, and their But Mullenix says there is processes behind the final too, which is added pressure. requirements to be disruptive, always a sense of “healthy aesthetic are fully appreciated, A good indicator of how well is forcing us to adopt a similar chaos” underpinning each Mullenix says he hopes that we are achieving that is by mentality as a firm.” scheme. “It is not the same the critique goes beyond the looking at the staff. If they get By this, he is referring in part as working on more finished look. bored one day when they are to process and staff set-up. To conventional projects where “I do feel as though we have working here, we have failed stay agile, NBBJ thinks of itself we map out a process,” he transcended the 1990s and them.” as a group of 40- to 50-person says. “The chaos part is being 2000s, when design was more NBBJ’s tactic has been to workshops with access to a able to adapt – quickly and about trophy buildings. A lot balance this appetite to resource of 700 people. “By often. I can tell you first hand, of overseas work at that time in innovate against a more creating something that is it doesn’t matter how much particular was for what we measured growth strategy. similar in set-up to some of you map out the project, would consider a beauty This has been a particular focus those smaller-design ateliers, ultimately you have to plan for contest. Things are different amid the exponential rise of we have created the disruption. now. the tech giants over the past opportunity to have “Luckily, I love the “We are working on few years – companies, such conversations that often get ambiguity. I have enough of a Tencent’s 270,000 sq m HQ in as Amazon, that NBBJ has lost in big corporate practices,” creative background that I China at the moment. The been working with for a long Mullenix says. “It allows us to don’t mind that process. It is concept is two high-rises time but that have more have very frank conversations not always comfortable. But it physically connected at three recently propelled them and it also allows us to find the shouldn’t always be points to avoid the danger of further into the limelight. right idea for each project, comfortable. Stress and people feeling isolated. You “Growth is not about whether it comes from the pressure are what it means to can disappear into some of

Spring 2018 56 Samsung HQ, San Jose, California

Bill and Melinda Gates Foundation campus, Seattle Tencent Seafront Towers, China those huge high-rise towers, of concrete and steel and they profile masks a lot of other the world and its built get in to the lift and then never have shorter lifespans than a activity. environment. see your colleagues. We are frail, human body. That is a “I think the prominence of He says: “Cross-culture trying to recreate what it huge amount of waste. A some of the tech companies development is so incredibly means to work in a waste of space, materials and means that Seattle’s history important and technology is transparent, open-plan design energy. and diversity gets a bit lost. going to be at the forefront of building through the original “Our responsibility as Yes, we have Amazon and that. I mean cross-culture design and structure. designers is to change that Google and Microsoft but also globally but also across “We are working on another and to pull other companies retail with Nordstrom and markets. scheme at the moment where along with us. Part of that is Starbucks. And there is a huge “It all used to be so we have physically divided the about thinking properly about aerospace history here, as well segregated. People would go floor up into a noisy part and a futureproofing our buildings, as a long music history. to the hospital to be cured of quiet part. As basic as that making them flexible and easy “Back in the 1950s, the only their illnesses and cared for, sounds, it is a fresh way to to adapt to change. real entity in Seattle was they went home to sleep and design and it goes beyond the “But it is also about making Boeing. There was a nervous to a hotel to get away. Now all final look. It is about experience. our cities as liveable as moment when it looked like it of those activities have started People can arrive at work possible. That has a knock-on might go under and a to blend together. every day and decide which effect as it reduces the sprawl billboard went up that read “We worked with a tech section to go to depending on that happens beyond the city ‘Whoever leaves the city last, client here recently where we their mood and tasks. That is edges and means we can please make sure you turn the had someone from the becoming more and more the focus on preserving natural lights out’. healthcare team on board as a basis of how we think here.” areas. If cities aren’t liveable, “Since then, Seattleites have lead designer, as healthcare He adds that longevity is a people leave and that’s when understood that when you has prominence in corporate huge focus for him specifically, we run into overconsumption focus on a sole industry, if office design. and NBBJ in general. The firm issues.” those industries pack up or “Variety means flexibility may be known for coming up don’t evolve, that the city will and ultimately we owe it to the with weird and wonderful The dangers of a myopic view die. And so I am tremendously world, as designers, not just to concepts and fresh ideas, but Speaking of liveable cities, encouraged by all the radically plan something for the first ultimately NBBJ is looking to Mullenix also warns of the different elements of industry, 10-year lease. We need to be create buildings that will stand dangers of becoming focused thinking and innovation here thinking about the fourth the test of time. on only one industry. It is a now.” generation of people who will “Commercial buildings here pertinent point to make, as a be in this building and how in the US have an average Seattleite operating out of a Tech giants shape the future they will occupy it. lifespan of fewer than 70 city well known for being And he is quick to add that, far “To design something now years,” says Mullenix. “That is a dominated by a particular from dying out, the ever- that will be torn down in 70 remarkable thing to me. We company. But he adds that evolving tech giants will years’ time? That’s what we are building these things out Amazon’s disproportionate continue to shape the future of have to avoid.”

Spring 2018 57 TRENDSETTER I CONVENE

Convene combines meeting and events space in the US and is expanding schemes The offices that come with hotel services how, when and where they where there is a human-to-hu- much more advanced than work. man experience rooted in New York or Asia, but I think Co-working is a piece of that, hospitality creates soul. And I North America will lead on the but it’s the headline. The trend think we are all craving that. tech and certain parts of Europe line is what is offered across the Office spaces have to be will lead on design. board from a design and tech designed empathetically. They In the future we need to be Ryan Simonetti, chief executive perspective. This includes the have to make people feel good. in Asia. London is near and dear and co-founder, Convene snacks – and we have a strong Because how much time do we to our hearts, which is why we snack game here – and the spend in offices? It’s a huge announced in February that we Space as a service is agnostic to offers and events spaces. chunk of our lives. Work/life have instructed agents to sectors. You see it in retail, in The millennial generation, balance has been replaced by find our first space in the UK hospitality and now in offices. which now dominates the work/life integration as we are capital. Convene, which has been up workforce and will make up all looking to make the best use From a space perspective, and running for nine years, 70% of it by 2025 or 2030, values of our time. we want to find the landlords offers workplace as a service purpose above all else. The same trends are playing committed to creating an expe- and partners with the largest I would argue that most of out globally but different rience for the end-user that is global landlords – including us go into offices that don’t regions are leading on different different and deeply empa- Brookfield and Blackstone – to inspire us every day. So to be things. From a space-as-a-ser- thetic. It is less about location help them operate their office able to design a physical space vice perspective, London is and more about partner. buildings more like a full-ser- vice hotel. It is about lifestyle as well as workspace, so we build in events space, meeting space, co-working facilities and hotel- level amenities when it comes to the sorts of food and drink that are on offer. The future of the office is not all about co-working, but rather making the real estate a con- sumer experience. Convene is hospitality com- bined with the traditional office building, but it offers some- thing that moves away from the tenant to focus on the individ- ual, because these are the people who can now choose An events space in Midtown, New York

Spring 2018 58 Build it, buy it, sell it.

Real estate has never been more global or more complex than it is today. We understand that it is a critical part of your business, regardless of where in the world you operate. In a fast changing global market, we have been at the forefront in helping our clients navigate and redefine the most complex and high-profile real estate deals. From real estate investments, developments and how to finance them, to places to work and live. Whether you are looking at offices, retail, industrial, logistics, hotels, residential, or any other type of building, we can help. With over 500 lawyers in our global Real Estate Industry Sector Group, we use our deep insight of real assets to help our clients across the entire property lifecycle. Everything from fund raising to joint ventures, acquisitions and disposals, development, financing, restructuring and disputes. We have experience in working with virtually every aspect and type of real estate project.

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Hogan Lovells is an international legal practice that includes Hogan Lovells International LLP, Hogan Lovells US LLP and their affiliated businesses. Images of people may feature current or former lawyers and employees at Hogan Lovells or models not connected with the firm. www.hoganlovells.com © Hogan Lovells 2018. All rights reserved. Coming this April: Data that will drive more deals for you.

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Data that enables the best market advice, drives more deals and saves you time and money. Radius Data Exchange, the powerful data-sharing platform created by the market, for the market.

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