There are also exogenous elements to the future success of Luxembourg such as the ability of Europe to attract capital flows and the appetite of asset managers to continue investing overseas. On both fronts, the outlook seems to get brighter. Various Real Estate companies believe that Europe is likely to become targeted for inbound investments due to the relative stability of its Real Estate market. Furthermore, they will have to look overseas to satisfy investor demand due to the unavailability of prime assets in domestic markets. Some may not be convinced yet.
In my view, a short-term reaction to the firming up of certain markets, notably the London market, which might lull some companies into believing that there is still plenty of opportunity at home. The concern is that the pick-up may not be sustainable. Those companies that do not fortify their businesses with the requisite expertise in international regulation, tax, commerce and cross-border investment could find themselves unable to compete in a more international and, inevitably, more complex sector.
Another element of success is the adaptability of our local Real Estate community. The economic uncertainty has definitely taken its toll on the construction, property and real estate sector and it should come as no surprise that businesses are continuing to re-evaluate where their priorities lie. To some extent, fund managers have carried the can for the sub-optimal performance of Real Estate investments during the financial crisis and the KPMG Business Leaders survey suggests that to regain favour with investors fund managers will need to extend their knowledge of the global Real Estate market and back their decisions with greater transparency and more robust reporting.
Investors will expect fund managers to not only understand home and international markets but will want explanations for the flow of capital from one country to another and more robust rationale on which to base their investment decisions. The survey further highlights the importance of improving cash and working capital management, changing business operations & models to realize cost efficiencies and exploring growth opportunities through successful transactions.
The Luxembourg Real Estate professional community will not stay immune from those business changes and should grab the opportunities. It will not only have to help its clients succeed in an evolving regulatory and tax environment, it will play a key role in supporting its clients navigate successfully through a complex business environment.
Top business issues for Construction, Property & Real Estate
Percentages add up to 300% as all respondents had three votes
Hypothesis benchmark
Hypothesis 1:
Due to the unrest and upheaval elsewhere in the world, the relative stability of the European real estate market will make it an attractive target for inbound investment flows. However, that same uncertainty may also force big corporates to rethink their cost base once again, to focus on core services and even to reduce headcount, thereby putting pressure on rental rates and property values.
Hypothesis 2:
The scarce availability of local prime real estate assets will force more investors to operate outside of their own domestic markets. This will require a far greater knowledge of local markets and underlying commercial parameters, foreign tax and regulatory requirements as well as of the vehicles required to make such cross-border investments. This will drive far greater complexity into the real estate sector.
Hypothesis 3:
Fund managers will have to deliver increased transparency, more robust reporting mechanisms and a global understanding of property markets with more regular strategy updates if they are to rebuild trust with investors, many of whom believe that fund managers’ decisions were partially responsible for funds’ sub-optimal performance during the crisis.
Hypothesis 4:
With the traditional debt market for real estate investments having reduced considerably, funds will have to recycle capital to raise cash for new investments. This will typically entail disposing of real estate assets with stabilised income or striking a joint venture by selling majority stakes in an asset to institutional investors.
Stephane Haot, Partner, Real Estate & Infrastructure at KPMG Luxembourg