‘Double Dip’ Recession and Key Themes for Real Estate

Colin Dyer
Chief Executive Officer
Jones Lang LaSalle

It wasn’t so cold this morning, and I had breakfast at the hotel with the CEO of Dassault Systemes, a global tech systems company which has become a client since this event last year, with the potential to grow further. 

Met up later in the day with a Board member of Allianz, the German insurance company, who are clients in both capital markets and tenant rep across three continents. And with the CEO of Bloom Energy, a U.S. West Coast producer of innovative fuel cells which is moving out of the startup phase into commercial production. 

Dodging a ‘Double Dip’ Recession 

In the conference program, itself, I finally saw a lively broadcast session called ‘Dodging the Double Dip’, which turned out to be a series of spats between panel members and the audience. 

One panelist, U.S. congressman Barney Frank, argued that there will be a double dip unless the U.S. stops spending on defense. Pascal Lamy, Director-General of the World Trade Organization said there will be a double dip unless world trade is kept free. And the president of the International Trade Union argued that there will be a double dip unless governments rapidly create more jobs worldwide. An economist from SBC thought we were doing just fine. 

Everyone pushing their own agenda, and all pretty inconclusive… 

Key Industry Issues 

This afternoon I was on a panel with the CEOs of the Boston Consulting Group, Eton Park Capital Management and NBC Universal, and Josef Ackermann, Chairman of Deutsche Bank. Each explained the key issues facing his industry. The conversation constantly came back to the issue of regulating the financial industry and getting it back to work again. Our five industry themes link in with that. 

Our 5 Key Themes for Commercial Real Estate 

I said yesterday I’d come back to these themes, which the real estate community here believes will be important over the next 12 months. 

• The first is obviously the trajectory and speed of broad economic recovery worldwide, which will drive demand for space in retail, office, logistics and so on.  
• Second, when do national regulators settle on the regulatory approach they’ll apply to the financial system? It’s clear that this whole subject is causing a great deal of uncertainty for the banks. (More below.) 
• The next item is the reopening of securitization markets. Deutsche Bank Chairman Ackermann believes the security markets will (must) reopen, because there is demand among investors for the instruments, and because banks need securitization. They cannot carry the scale of lending needed on their balance sheets. But when mortgage-backed securities markets do reopen, he thinks they’ll be more transparent, simpler and much less risky than the paper assembled to 2007.  
• The fourth major theme is central bank policy on interest rates and the availability of liquidity. This obviously affects the availability of debt for real estate finance. 
• Fifth and finally, the area of sustainability is a big issue for the whole real estate sector. Corporates and governments are increasingly demanding efficient space. Owners are beginning to see that they need to make real estate energy efficient to keep its value over the long term. And there’s the added ‘zing’ of coming government regulations on building performance.  

So those are the big issues which the real estate group discussed yesterday, and which we then shared with the broader Davos audience this afternoon. 

Financial Institution Lending 

I also said I’d talk about banks and financial groups and their willingness to lend. 

Absent any other factors, the banks here seem keen to gradually get back to business as normal. They’re looking to increase lending to all sectors as world business improves, as their confidence in their customers’ credit-worthiness is restored, and as their own balance sheets are gradually repaired after losses in the recession. 

But they’ve plainly been spooked – and are genuinely upset – with the political response to public anger about bank performance. They themselves believe that the real problems are deep and need to be quite carefully worked through, and shouldn’t be handled on the back of a knee-jerk reaction. Paraphrasing Herr Ackermann, “The issues need to be looked at rationally. Do we have to match sound bite for sound bite?” I think they do if they want to fight poor regulation…

Bloomberg reported that the banks have been meeting together privately here. You can wonder for what purpose. 

Corporate Confidence 

Finally for today, a few thoughts on the overall level of corporate confidence, which obviously is important for our Corporate Solutions business and for our tenant rep and leasing work worldwide. 

Companies are regaining confidence. They have generally had satisfactory earnings, and most have solid cash/liquidity positions. They’re in a mood to move forward and grow their businesses again, but are still looking for evidence to proceed, given the experience of the last 24 months. And, of course, they’re not facing uncertainty from unpredictable new regulations, like the banks. 

So while there’s relief rather than enthusiasm in the Davos air, there is growing confidence that demand in most industries is gradually coming back. It’s good to have that confirmation of our own thinking about our plans for the year. 

It’s stopped snowing, and it’s slightly less cold tonight. This evening’s events include a reception with Citibank’s bosses, followed by a reception with Deutsche Bank’s top people, and then a dinner with Wipro, the Indian IT outsourcing company. 

One more day, and on the plane home on Sunday, I’ll summarize key themes for you.

1 Comment
Categories: World Economic Forum 2010