Editorial
Article Type: Editorial From: Journal of Property Investment & Finance, Volume 32, Issue 5
We cannot solve problems by using the same kind of thinking we used when we created them (Albert Einstein, 1946).
Most European property markets have experienced a sustained period of growth since the mid of the 1990s and until 2008, followed by a rapid decline. This has resulted, for some countries, in a combination of credit crunch and sovereign debt crises; high level of unemployment and a general lack of growth and competitiveness. Only in a few cases, six years on, have weak signs of recovery stared to appear.
The financial economic crisis has impacted on the European real estate markets, even if not all European countries are behaving in the same way. Some witnessed a sharp and sudden fall in property prices and transactions, while others have has a gradual,continuous and steady decline of prices over a relatively long period. In some other countries, the crisis has been modest.
The economic situation has found developers, investors, lenders unprepared for the downturn. Some investors and developers started to panic as capital flows froze and the transaction activities dramatically reduced. They did not know what to do;they still do not know what to do. You can see them in meetings, conferences, seminars, always asking the same question, “What do we have to do now?” Some of them just sit and wait for the recovery of the market, as their most attractive investments have been purchased, just prior to the crises, with a large leverage, while some are changing their mentality and attitude,focusing on the real needs and requirements of the market and not only on their spreadsheets, cash flows and profits.
In some countries, where the market was drugged by easy – to – finance projects, very often far from the real needs of the demands, the crisis acted as a sort of “detox”. Easy credit and poor due diligence created a hypothetical demand which, in turn, led to a massive over-supply and too many homes and commercial properties were built. They just built. Not to respond to real demands of the market but in the belief that demand would come.
So now it is time to change, it is time for the players of the market to change their attitude. Enough time has passed since the crisis started for the players in the market to recognise the need to adapt to the new reality and not just wait for better times to return.
Every real estate project requires a careful study of the relationship between local supply and demand, without neglecting the macro economic variables of the national and international markets. The fate of a real estate project depends on its responsiveness to the needs of the local market in terms of function, size, shape and price. Properties only produce income and value if they meet the needs of their end users. Those who work in the market need to think and plan for the future. It takes intelligence and courage to change the behaviour of dealing with the uncertainties in the market. If we assume that, in the future, there will be a recovery in the European real estate markets, we still cannot predict the duration and intensity of this recovery,and the kind of demand that we will be facing, but it is certain that it will not be the same as we experienced in the last decade. Therefore, the actors in the market do not have to wait until the next upswing to replicate their behaviour, but they have to see what it is going on, slowing changing and shaping the future. The demand in the markets will look for have a growing qualitative and not quantitative supply. Real estate products should pursue different objectives as selectivity, flexibility and multi-functionality. It will require innovative and efficient approach able to ensure coexistence and cohesion of different functions, with attention towards sustainability, conservation of the existing buildings and the preservation of landscape.
The green economy, the energy conservation, the use of new materials, the introduction of technologies in the buildings, attention to sustainability are topics on which the developers, investors and architects have to focus on. An important problem will be the how to use of all those empty buildings which lost their function/utility in the downturn. To give a new life to such buildings, the architects should start not from the “skin”, the building, but from the “soul”, the users, their needs and their wishes. It is a new way of thinking, combining design and utopias, hopes and views, as proposals for new interpretations of the collective life. Living is the visible expression of a part of our personality and is a concept that everyone in real estate should not forget, because it is about the places where we live and we work in the present, the relationship between interior and exterior. The design must arise from a compromise between the habits and desires of those who live there, the morphology of the place, the environment, the needs of investors and local cultures.
The success of the future of real estate will depend on the ability to imagine non-standardised products, which intercept and help the development and dissemination of future macro trends that respond to the needs of socio-demographic, and taking into account the needs of the environment, as the improving energy efficiency and reducing consumption of soil. The issue of land use and transformation – often destructive – is an unavoidable issue. This does not mean having a Luddite attitude and tied to a nostalgic return to a rural society, but only to understand how to balance between town and country, between fullness and emptiness, between artificial and natural in order to re-generate the quality of urban and territorial and so,quality of life.
There is much to do and the changes will be profound. It is important that the real estate industry and actors know how to react and change to meet new challenges of the future. The changes are not threats but opportunities. The whole system of real estate has a great responsibility for the future of the countries and a great economic power, and this involves architects,governments, investors and developers. In addition, above all, people.
As I am teaching property valuation and investment to students who will (maybe) be architects/real estate consultants in the future, I always try to show them that they have to balance the need of the demand and the requirement of the supply. But it is a difficult task, which goes beyond the plans, the designs and the shape of the buildings. Even if their future includes very fashionable concepts such as “smart cities”, “social housing”, “shared mobility”, “zero – energy” and “high – tech” buildings,they should not forget that the main source of renewable energy would always remain the human intelligence.
Laura Gabrielli
