Keynote: Post Pandemic Cities and its Economic Impact on Global Property Markets

Speaker: Edward Glaeser, Fred and Eleanor Glimp, Professor of Economics at Harvard University.

• Through history, the economic impact from plagues has been disastrous, but risk has increased in modern times due to rapid urbanization. Jobs are now concentrated in urban service sectors and can disappear overnight when people stop using those services. Small businesses close, workers become telecommuters.
• The question is: to what extent will this economic dislocation be permanent? In general, telecommuting is a negative for the economy. It generates inequality because it favors the educated and wealthy and is also bad for productivity – face-to-face connection is how we learn.
• Still, projections show some 40 percent of workers who switched to teleworking will stay switched, which translates to about 12 million U.S. workers. As a result, demand for office space will fall, while demand for homes will increase.
• In the end, everything depends on how long the pandemic lasts. If it ends soon:
  • Values and rents for offices will be lower,
  • But space will be more affordable for younger firms hungry for face-to-face contact, and with younger employees who don’t want to work from home. Cities will become younger.
• If it doesn’t end soon, it will shatter the urban services industry and create lasting economic dislocation. The world will need something in the spirit of NATO, with nations willing to work and spend collaboratively on research and a global vaccine pipeline.

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Global Capital Markets — Responsible Investing and The Growing ESG Opportunity in Real Estate

Speakers: Kathleen McCarthy, senior managing director and global co-head at Blackstone Real Estate; Peter Ballon, global head of real estate at CPPIB; Kazunari Yaguchi, senior managing director and head of real estate at Japan Post Bank; Sonny Kalsi, CEO at Bentall GreenOak.

• Changes in investor attitudes to environmental, social, and governance (ESG) over the last five years has been exponential – it’s now considered “one of the most important parts of an investment decision,” and five years from now “it’s going to be a very different conversation again.”
• Of the three themes the “E” (environmental), has recently come to the fore, with climate change the main factor. Drivers of change:
  • The carrot: growing availability of green finance helps.
  • The stick: global investors – especially from Europe – are increasingly requiring projects comply with baseline ESG standards. Availability of insurance is also a concern.
• In the past, short-term holders (read: value-add buyers) considered climate change a far-off prospect, but nowadays you have to consider that your next buyer will be underwriting for environmental risk. As Peter Ballon, global head of real estate, CPPIB, said: “We think ESG is just a lower-risk investment type.”
• Net-zero carbon targets, meanwhile, are hard to understand and even harder to meet, though “we are trying to put ourselves on a path to go there.”
• Meanwhile, the “S” (Social) is also gaining traction – Blackstone now has a target of one-third diverse membership on boards: “What we’re latching onto most is diversity and equity and inclusion,” said McCarthy.

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Panel: The PropTech and Venture Capital Partnership

Speakers: Brad Greiwe, co-founder & managing partner at Fifth Wall; Julian Mialaret, operating partner at IDinvest Partners; Michael Spies, venture partner at Navitas Capital; Sara Shank, managing director and global head of innovation at PGIM Real Estate.

• The pandemic has been an accelerator of tech adoption across every asset class including real estate, where it is a “saving grace” allowing corporates to operate businesses remotely and engage customers in new ways. Possibly the most important category involves digitally enabled consumer engagement, a theme that began in the retail sector and has spread to office, residential and even industrial. Tenants have become customers and landlords are using tech to engage them in new ways, from digitally enabled leasing activity to creation of consumer-centric products and services.
• Examples include “smart rent” in the residential sector, and also “computer vision” that allows, for instance, live monitoring of ongoing construction activity or the visualization of space for the purposes of leasing or transacting. Another continually evolving theme has been flexible workspace strategies, as they move beyond the standard WeWork model and seek out new ways to provide workplace flexibility, especially in terms of using space productively.
• In the Asia Pacific region, the same trends apply, but there are also differences. In particular, software buyers are not interested in standalone solutions – they prefer technology linked to some kind of service. Use of data is another area where the approach is different, as privacy is a much less sensitive topic.
• One area that is set for growth is technology that facilitates uptake of ESG strategies. Few real solutions exist yet in this area, but there is huge demand for sensing and monitoring hardware that can measure performance and compliance. This is one area where lack of regulatory frameworks setting standards for everything from planning codes to environmentally oriented construction standards is holding back the environmental cause.

The End of Stability?

Speakers: Dickon Pinner, senior partner and global leader, sustainability at McKinsey & Company; Richard Price, managing director at BentallGreenOak.

• Asia is likely to suffer more from climate change than other parts of the world – many cities are on coastlines, and it has many extremes of heat, rain, and drought. Not only does this create economic risk, but climate change is by nature also a risk multiplier because it creates knock-on effects that exaggerate the initial impact. At the moment, many of these risks are not built into economic models.
• Capital markets are starting to favor assets with lower carbon footprints and greater physical resilience. This trend will grow because both research and technology now allow better forecasts of how risk will affect different geographical areas. New software applications, for example, can model current and future risk to a given location from flooding, fire, and other natural disasters.
• Still, Asia has a fundamental advantage over Europe and North America because so much infrastructure has yet to be built, and it’s easier to incorporate resiliency when you build rather than by retrofitting. So even though its risk from climate change is greater, Asia is also better positioned to mitigate that risk.

Preparing the city for 100-year-old people

Speakers: Charlene Chang, group director (Ageing Planning Office) at Ministry of Health, Singapore; Yumiko Murakami, head of OECD Tokyo Center; Sonja Pedell, A/Prof and Dir, Future Self and Design Living Lab at Swinburne University of Technology; Takashi Sonoda, founder and CEO at Uhuru.

• Japan is the fastest-aging society in the world, with more than 25 percent of the population currently over 65. But other Asia Pacific countries are not far behind: Singapore will reach the 25 percent milestone by 2030, and Australia will have 10,000 centenarians by the same date. Rapidly aging societies create a need for urban environments better suited to an older demographic.
• This can be addressed in part through better hardware: smart technology that caters to the elderly can be implemented at both the community level and within homes, helping bridge a digital divide that exists with some older people. For example, purpose-built assisted living facilities feature data management systems that monitor health on both an ongoing and predictive basis. This is not a focus at the moment because the technology industry is dominated by young people.
• Older people need to be more involved in decision-making processes, as well as the community at large. Singapore’s Action Plan for Successful Aging, for example, focuses on how elderly people can get better access to care, contribute actively to the community, and stay connected, both digitally and physically.
• Currently, too much thinking takes place in silos, which leads to good ideas becoming fragmented and lost. Connectivity is therefore key, both in promoting more integrated services, and in creating social programming that allows the elderly to communicate in more effective and personal ways.

Mayors Dialogue: [Re]Shaping the Human Experience in Cities

Speakers: Ahmed Aboutaleb, Mayor of Rotterdam; The Lord Mayor of Melbourne Sally Capp; Professor Greg Clark, group advisor on Future Cities & New Industries at HSBC; Yuriko Koike, Governor of Tokyo; and Hiroo Mori, director and executive vice president at Mori Building Co., Ltd.

• Three different leaders of major global cities spoke in turn about how the pandemic has affected their cities and how the built environment will likely change in future in its wake.
• Mayor of Rotterdam Ahmed Aboutaleb spoke of how COVID has boosted the cause of resilience in general, noting in particular a proposal to build a 40km-long pipeline to transfer carbon dioxide gas from the city’s oil refineries to North Sea oil wells. Another anticipated change was that many jobs connected to downtown offices in the city would likely disappear, leading to a dramatic 50 percent decrease in office space that would be absorbed instead by creation of housing for young people to live in and near the city centre.
• The Lord Mayor of Melbourne Rt. Hon. Sally Capp also spoke about how the pandemic allowed the city to accelerate plans to boost climate-change mitigation measures. Looking forward, there would be a switch to stimulating growth through big-city shaping programmes (with a focus on green public open spaces), and also a need to embrace the fact that disruption from the pandemic has provided a chance to reset. Finally, like Rotterdam, Melbourne anticipates reduced (though not to the same extreme) demand for commercial space as well as changes to the ways that space is used.
• Yuriko Koike, Governor of Tokyo also weighed in on the common theme that the pandemic had now forced the city to address challenges that had long been on the back burner. In particular, the city would look to increased use of digitalisation, in particular in the financial sector, but also by promoting the use of telecommuting. Beyond that, Tokyo is also embarking on a long-term campaign to reduce reliance on vehicles (all of whom must be non-gasoline by 2030), in addition to taking steps to reduce building carbon emissions, in part via a cap and trade scheme.

Keynote Address: Kengo Kuma

Speakers: Kengo Kuma, architect at Kengo Kuma & Associates. Introduction by Keith Fujii, head of Asia Pacific, LaSalle Investment Management.

• Kengo Kuma is a Tokyo-based architect renowned for his ideology of bringing architecture back to nature. He is also the architect of the recently completed National Stadium of Tokyo, slated for use as the main stadium for the Tokyo Olympic Games.
• Work on the stadium began in 2015, embracing a return-to-nature design theme and extensive use of natural materials and vegetation. In terms of style, the inspiration came for the Horyu-ji Temple, a shrine in Japan’s Nara Prefecture that has survived 1,400 years due to its exquisite attention to detail and naturally harmonious design.
• The stadium emphasizes Japan’s traditional commitment to craftsmanship and features wooden soffits and roofs, gaps in the building fabric to bring in breezes, and numerous open spaces. Use of air conditioning and artificial environments were avoided as much as possible, while also embracing technology, such as the transparent photovoltaic cells that line the rooftop edges.
• The session also featured presentations of multiple other Kengo Kuma projects, including the Besancon City of Arts and Culture, which mimics the feel of torri gates from Japanese shrines, the Darius Milhaud Conservatory of Music in Aix en Provence, which is reminiscent of the nearby Mont Sainte-Victoire mountains, and the Fonds Regional D’Art Contemporain in Marseille, which prominently features recycled glass as a construction material.
• In summary, Kuma articulated his hope that COVID will be a turning point for the modern approach to architecture. Until now, there has been an increasing trend towards centralization as a guiding theme, with buildings becoming bigger, taller, and denser. In future, Kuma sees a reversion to a simpler aesthetic, one that is in harmony with the environment and draws from nature as much as possible.

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Geoeconomics Outlook and Expectations for Recovery

Speakers: Dr Komal Sri-Kumar, president and investment strategist at Sri-Kumar Global Strategies, Inc.

• COVID-19 has had a massive impact on the global economy and markets. But its impact economically will not be lasting–over a 5-10 year period, prospects remain on track. However, recovery rates will differ. Countries able to resist high infection rates (e.g. China), will recover first economically. The U.S. currently leads Europe, although they can expect an economic recovery in the second half of 2021. Laggards will be India and Brazil, who have suffered worst.
• Factors helping recovery: Demographics – countries with younger populations (India, Indonesia), high saving rates (most Asian countries), and high consumption-to-GDP ratios (USA) will do better, while exporters (Germany) will fare worse. Japan, and South Korea, meanwhile, have higher median ages, and will need to implement structural changes to stimulate growth.
• Giants colliding: China will become the biggest economy in the world by 2030, bringing with it global economic and political dominance and challenging the U.S.-led status quo At the same time, China has a growing debt problem at the state and local government level that may have knock-on implications on a global level. China also has a demographic problem because its one-child policy is leaving it with a rapidly aging population.
• The macro: In an environment of high inflation caused by massive stimulus, fixed income products (i.e., bonds) will probably weaken, reversing strength shown over the last decade. Equities markets, meanwhile, are sharply over-valued, having received a large portion of global stimulus capital, and will be at risk in an environment of economic weakness. As a result, real estate and other hard assets will become a safe haven. Be sure, however, to avoid countries with large current account deficits.

Investment Trends: Perceptions on the Institutional Residential Market of Japan

Speakers: Dr Leonard Meyer Zu Brickwedde, president and CEO at Kenzo Capital Corporation; Harumi Kadono, MD, head of department, Fund Management at IDERA Capital Management Ltd; Joel Rothstein, shareholder and chair, Asia Real Estate Practice at Greenberg Traurig; Laurent Jacquemin, head of Asia-Pacific, Real Assets at AXA IM.

• Japan is unique in the Asia Pacific in having a relatively mature multi-family market. As international bond yields have compressed and investor focus has shifted towards safe, predictable income streams, its star has risen further. As a result, since 2012, the share of offshore money buying Japanese multi-family assets has now grown almost nothing to about 40 percent.
• Significant compression has occurred in the last few years, but a positive spread over the cost of debt in Japan makes effective cap rates higher than they seem. In Tokyo, residential yields are about 3.5 percent, currently higher than for office assets, but possibly falling to the same level in future. Banks remain accommodative, although LTVs have recently declined from 65 percent-70 percent to 55 percent-60 percent.
• Interest in secondary cities has grown strongly, partly due to competition in central Tokyo and partly to a decentralization trend caused by COVID-19. Yield spread between assets in Tokyo and Osaka, which used to be 75 basis points, is now around 25 basis points. Suburban areas of Tokyo are now also in favor.
• Investors are now more interested in development as a way to source assets, especially as construction risk in Japan is lower than elsewhere. Investors receive a new asset that is also likely to be ESG compliant – a significant advantage in today’s market. However, larger assets remain difficult to source, and competing with large local developers who have long dominated the construction industry is difficult. In addition, building new provides little advantage in terms of cap rates.