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Adjusting to Disruptive Change

24 October 16 | Byron Wien
Byron Wien

COMPANIES

Savills

Consultant - GREECE

IBI Group

Consultant - GREECE

Solum Property Solutions

Consultant - GREECE

ETAD.A.E.

Public entity - GREECE

PEOPLE

Antulio Richetta

Director IBI Group
Two conclusions emerged from the Benchmark Lunches this year according to Blackstone’s VP Mr. Byron Wien.

 

The first was that the world was condemned to a prolonged period of slow growth unless vigorous fiscal spending took place in the major industrialized economies.

The second was that considering the uncertainties caused by margin compression, limited revenue growth, the U.S. political outlook, terrorism, Brexit and other factors, the fact that the U.S. equity market is making an all-time high is remarkable. 

The productivity question had been a key topic in the discussions throughout the year as well.

Everyone knew that the productivity numbers were disappointing, but many of the discussions’ participants questioned the way productivity was being measured. On the downside, everyone acknowledged that millions of manufacturing jobs had been eliminated through robotics and other forms of technology.

The employee attrition problem was likely to get worse as artificial intelligence becomes more prevalent as a tool in the white collar workplace, eliminating jobs in law firms, healthcare and elsewhere.

Those worried about productivity and inequality were perhaps not recognizing changes in the “quality” of life. Technology had definitely made our lives easier even if this isn’t reflected in the productivity numbers.

“Secular stagnation,” a term developed by Harvard professor Alvin Hansen in the 1930s, was another issue. The term has been resurrected by Larry Summers and others to describe the difficulties economies have when they are trying to come out of a recession in which both an economic and a financial decline occurred, as in 2008–2009.

Monetary policy was the principal tool used across the world. Such policies across the globe had been enormously expansive since 2007, the slow pace of world growth is troubling though. Central banks have had no incentive to stop printing money, because inflation has not followed the enormous growth in money.

Almost everyone agreed that the time has come for more fiscal spending on infrastructure, education, job training, research and development and other programs to improve growth and increase competitiveness.

According to participants views for real estate as an asset category people at used to provide some optimism but this year their comments were more mixed.

The effects of the internet on retailing are significant, having an impact not only on shopping malls, but also on urban retail rentals.

Office rentals are still okay, and warehouses are doing well, but there has been some overbuilding of residential condominiums.  While apartment rentals continue to be in strong demand, rents are softer.

The outlook there is good, however, because we are not building enough housing units to keep up with family formations. If interest rates rise, 3% cap rates won’t look so attractive for commercial property.

Mr. Wien concludes that “the intermediate future was likely to be like the recent past: lower but positive returns. Let’s see if that’s the way the next year plays out.”

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