Paris – pourquoi pas? Why Paris attracts less investment than London.

Speaker: Andy Schofield, Director of Research at Henderson

There was a pleasing irony that the subject for our lunch on 25th October was the comparative investment merits of London and Paris. Henry V would, of course, have attached a different meaning to the word ‘investment’ than that used by our speaker, Andy Schofield, but, as Henry was equipped with long bows, so Andy was equipped with the research power of Hendersons.

Paris, of course, is not bereft of investment sources for real estate, but, whereas London seems able to tap the world, Paris draws its money more locally, and thus from a smaller pool. Why is this? Andy reviewed the elements that seem important to trans-national investment.

Both markets are quite liquid, but recent history shows that London remains more liquid at times of stress across a wide range of lot size. London also offers this liquidity in larger lot sizes. Both markets are in the Jones Land la Salle top 10 for transparency, but Andy argued that London valuers appear to be more aggressive and realistic in responding to market changes, which adds to confidence. On past performance there are, of course, differences, but Andy doubts whether that is a dominant factor in investment decisions. On all these criteria, then, there appears to be not much material variance. What tips the balance?

Andy picked two facts. The first is the London lease structure. Lease lengths of 10 years plus, with upward only rent reviews is attractive when compared with Paris’s 9 years with a break at 6 and an indexed review – i.e. perhaps an improved chance of a rent rise, but, of more significance, also a chance of a fall. The London structure is greatly to be preferred if borrowing is to be part of the transaction. There is no evidence that Paris occupiers are actually more footloose, but the security is a key factor.

The second key factor in London’s favour is its international status, particularly in finance. Some would argue that it is top, whereas Paris is 22nd. This brings familiarity amongst key decision-makers, and a sense of ‘bottom’. If you are a serious player, London is a ‘must’. Paris offers, of course, many jewels, but London has the Crown Jewels. (Your Scribe’s fantasy!)

In the subsequent discussion, London’s enduring eminence was questioned. Will the disgrace of financial markets devalue the merits of being a financial centre, and allow the centre of gravity to move away? Whilst this was thought to be a factor, a number of contributors pointed to the blossoming of other ‘international’ markets in London – business services and creative industries, for example; perhaps it will not need to depend so much on finance. The problems of the Eurozone, Andy felt, whilst very real, will not much affect comparisons between the two markets; Europe as a whole will swim or sink. Finally, current taxation proposals in France seem to be potentially damaging; as your Scribe’s addition, one thing the French are pretty good at is realism, once the gesture is got out of the way.

Andy was therefore pleasingly upbeat about London. However, there are storm clouds over Europe; its No 1 status may soon join Agincourt as a glorious thing that was not, perhaps, quite as glorious as myth paints it.

Michael Mallinson

What Makes a Rent? A Look Across Global Cities

Speaker: Maurizio Grilli, Group Senior Research Analyst, Grosvenor,  (www.grosvenor.com

After our Lunch on 28th June, your Scribe went to Covent Garden to hear ‘Les Troyens’, the epic opera about the mission of Aeneas to found Rome. I don’t know whether Maurizio will encounter a Dido on the way, and certainly, working for Grosvenor Estates he is not fleeing a burning City. Nevertheless, the task he described for us seems to have similar epic qualities: he is seeking to create a model that will explain the incidence of high rents in offices. Maurizio emphasised that, working for a landowner with long horizons, he is not concerned with what may be seen as volatile ‘noise’, but with the fundamentals of value creation. His ambition is that the model must have global application; I don’t think he mentioned Antarctica, but otherwise truly global – perhaps 500+ cities.

Currently, he is working on four variables which he hopes will be able to explain 60 to 70% of observed long term variation, i.e. variation with the ‘noise’ removed. His variables comprise GDP, Quality of Life, Connectivity and Demand/Supply.

GDP epitomises underlying economic activity; for this he can rely upon hard and extensive data. Quality of Life is more subjective, but is intended to capture the background of personal wellbeing that encourages the development of office-based service industries and capacity. He presently uses Economist Intelligence Unit data. By Connectivity, he is seeking to capture the critical mass of commercial activity, which will, of course, encompass electronic, travel and other forms of business inter-connection. He uses a count of global company HQs as his proxy, and finds this to provide one of the strongest variables. Finally, Demand/Supply. This is likely to be the strongest factor in the background noise, but he tries to see through that by viewing vacancy rates over 20 years. What he is seeking is evidence of long term supply constraint against a background of inherent high demand.

In subsequent discussion, Maurizio conceded that his four variables may not capture all that is required, agreeing, for example, that there are issues about legal security and a low incidence of corruption. As a subsequent thought, are there issues connected with educational standards? But maybe these are captured by ‘Connectivity’. He also agreed that, whilst he was only addressing office rents, a similar approach could well be valuable in other markets.

Maurizio was a convincing advocate of his approach, and there can be little doubt that such model-building should bring valuable insights. Your stick-in-the mud Scribe does wonder whether his clients will have the courage to follow the results he achieves if they stray too far from intuitive prejudice. After all, so-called research in other markets has had poor results for most investors. But it seems clear that Maurizio’s work will be an aid to clarity in what is likely to be a more complex world.

Michael Mallinson

Going for growth – the role of the 21st century Garden City movement

Charlie Hughes is a man with a mission, and, with great charm, he gave us both barrels at our lunch on17th May. Charlie is Chairman of Smart Futures and Chairman of the European Urban Regeneration Council at ULI.

Ebenezer Howard was a visionary in the development of town planning with his 20th century penchant for ‘Garden Cities;’ from that grew, perhaps in a distorted way, the British New Town movement. That has now run its course, but Charlie argues that as we are not meeting, and cannot hope to meet, our housing needs by ‘conventional’ means, it is time to re-visit and reinvent the Garden City as a socially-acceptable form for extensive development. Such thinking now appears to have a fair political wind.

Despite his missionary tendency, Charlie is clearly pragmatic about how the trick might be brought off in a world of planning authorities and ‘NIMBYs’. Your Scribe drew out seven principles from what he said.

First of all, any proposal must start from a financial framework, not a planning one. The resulting ‘City’ must, of course, manifest town planning of the highest order, but financial imperatives must rule, not planning visions. This led to an uncomfortable truth that successful projects are likely to lie in the NIMBY-rich South-East, not the more welcoming, but cash-strapped North. The financial framework will require sophisticated engineering, realistically apportioning risk to the needs of those providing the various tranches of finance. Early risk would probably have to lie with the public sector, later risk with the private sector.

Secondly, the proposal must secure cross-party support so that its delivery is politically secure over an extended period; the New Towns showed that this can be achieved. It would also be necessary to secure local business and private support; although nimbies are vocal, they are not always the majority.

Thirdly, the delivery ‘authority’ must be given the powers to deliver, without being subjected to whinging pressure groups; once the political decision is taken to build, it is built. This was, of course, the great strength of the New Town Development Corporations.

Fourthly, the delivery authority must not be politically-driven, but project-driven.

Fifthly, the financial structure of the project must be such that much of the land value created is captured and re-cycled to enhance the development and subsequent management of the City. No doubt this will require a small modicum of profit-sharing with landowners, but the principle of value-capture is important.

Sixthly, the planning and design must deliver not only excellence, but also variety in tenure, variety in price, and variety in size and quality; this principle of variety should apply to the commercial as well as the residential elements.  

Seventhly, the development framework needs to provide for long-term ‘community management’, particularly, but not exclusively of extensive ‘communal areas,’ areas that are indeed managed, via trustees, by the community with secure ongoing funding. (Did I hear praise for Milton Keynes in this?)

Despite this clear vision, Charlie was well aware of the difficulties. Providing the central drive runs counter to ‘localism’. Political and planning lobbies are strong; if a local authority takes an initiative, will it be willing to let go? The UK has a poor record in private/public co-operation. There are legal framework challenges, not least in overcoming the Leasehold Reform Act. Above all, there is the challenge of generating a critical mass of support.

My father warned me against men with visions – but he hadn’t met the persuasive Charlie.

Michael Mallinson

Post script

The government will be inviting proposals for the development of new Garden Cities from July this year. The publication ‘creating garden cities and suburbs today’ can be found on www.tcpa.org.

Spanish Real Estate Crisis: A Perspective from the Inside

José María Sanchez de la Peña was a man with a problem when he came to address our Lunch on 15th March 2012. It was a lovely early Spring day, with Hyde Park looking full of promise, but his message did not match this backdrop – by some distance. Apart from a few favoured locations in Madrid and Barcelona, all parts of the Spanish market are in retreat. Despite falling by around 30%, housing is still not affordable, and, with a weakening economy, demand from business occupiers remains feeble. Banks have become effective owners of large swathes of property, but have really not yet ‘bitten the bullet’ of changed circumstances. There are many examples of their selling buildings with 100% mortgages; the triumph of hope over reality! With very few exceptions, whilst land might have a price attached to it, it has no value. In response to a question, to emphasise the darkness of his message, José María doubted whether this represented a good ‘buying’ opportunity.

To make his message bleaker, the prospects for recovery seemed remote. He saw values falling for a further 12 or 18 months. Beyond that, the future was not really in Spanish control. If the Euro and Europe could be stabilised, then a base from which growth could start would be found, but bringing about that (relatively) happy state was not in Spain’s gift; the big issues lay elsewhere. Whilst José María emphasised that he did not want to make political points, the recent change of Government had, perhaps, removed one of the sources of trouble, but it was far from clear that the new lot could find the way out.

This description of such a dark picture left your scribe wondering how Spanish Society was coping with it; José María drew attention to the foundation of National Socialism in Germany in dire economic circumstances. However, there are two counteracting forces. First, there is a very extensive ‘black economy’ – ‘black’ in the sense of being below the radar of official statistics rather than illegal. The second is the strength of the ‘family’ in Spanish tradition; most people live in a supportive social context that mitigates, and spreads out misfortune.

I found José María’s words academically interesting (an insight into how it feels when economic distress reaches a tipping point), but socially deeply disturbing. I felt there to be a degree of desperation in that there seems to be no view of an exit from the present turmoil. The message was a gloomy one, and your Scribe may have over-emphasised its blackness; José María was clear that there are opportunities; you just need clear eyes and brain to judge them. However, in response to another question, he did not seem to think that there was a deal to be done in that Spain has a million houses to spare and Britain has a million people wanting homes.

Michael Mallinson

Stagflation becomes stagnation; buy property not peanuts in 2012

Overview

Our speaker at the lunch on 19th January was Prof. Angus McIntosh, Economic & Sustainable Property Consultant with Real Estate Forecasting Ltd and Oxford Brookes University. Prof. McIntosh gave us a passionate and persuasive case that prime UK commercial property investment will have the best decade in real terms of performance (apart from the 1990s) since the 1960s. Total returns will out-perform inflation. To find out why and how please read on below.

Members and guests were persuaded so during the Q&A session most discussion focused on where value could be found in the markets both sector and location. The risks inherent in an uncoordinated green agenda were also explored fully.

Economy

As inflation slows down from over 4.5% to 2.2%, and economic growth falls from 0.9% to only 0.4% pa or less in 2012, stagflation (higher inflation but lower growth) has receded. Economic stagnation is with us, but this is not as bad for property investment as conventional wisdom dictates.

Even if the Euro currency does not collapse in 2012 (this is still less likely – Germany has far less to lose by holding it together) UK economic growth will be close to a double dip recession. At present all the Euro policies are wrong; extreme austerity (as imposes on Greece & others) never worked in South America in the 1960s, nor in Russia in the 1990s, nor even in Germany in the 1920s. You would think Europe knows the consequences can be disastrous.

Quantitative easing, a low bank rate and a low value of £Sterling will assist the UK economy.

Commercial Property Rents

London office rents remain the only star in a stormy sky; across much of the UK office rents will fall further.

The credit crunch has now become a consumer crunch; down-town retailing will collapse still further. All out-of-town retail property will out-perform in-town property rents. Even the London Olympic Games will not change consumer sentiment; London is already performing better. The rest of the UK will remain a tough environment for many retailers.

Industrial rents will mark time; what you see is what you get, for at least three years – despite the on-going explosion of on-line retailing, which is further undermining down-town retailing.

Residential Property

House prices, apart from Central London (where funny money from around the world is "parking funds" in the market) will stagnate for at least five years.

Residential investments to lease, especially in South East England, will produce returns (mostly income) of three times the rate of inflation, at +7% over the next 5 years.

The Green Agenda

The "Greenest Government Ever" has lost its way; short-term political expediency from 11 Downing Street will eventually cost the UK far more than, for instance, the financial legacy debacle of defunct PFI projects dreamt up over 10 years ago.

The legal farce the Government created, by dramatically lowering the feed-in-tariff for homes making photo-voltaic energy, two weeks before the consultation period ended, is symptomatic of the mess.

Climate change is a reality – however caused. Over the medium term oil, food and all commodity prices will rise faster then general inflation, caused by crop failures (sure as peanuts in 2011) and the Asian economic boom. The UK needs to both save energy and make far more green energy to protect its future.

The Green Deal (enshrined in the Energy Act 2011 allowing energy companies to retro-fit buildings) is unworkable and very expensive to operate. It is lacking due-diligence and enforceability. It is a sop to voters, and unlikely to work in the commercial property market.

Energy Performance Certificates are an un-regulated unenforceable expensive farce; 4 un-regulated assessors could legitimately produce 4 different certificates. The BPF and many others have campaigned for compulsory Display Energy Certificates on all commercial buildings. This would wake up the property market to their energy profligacy, and accelerate the UK’s declared commitment to meeting lower energy emission targets much sooner.

However, the taxation on energy (the largest in the world) via the Carbon Reduction Commitment will make the negative impact of climate change even worse. It is a regressive tax and does not address the need for a progressive tax based on both the whole-life carbon emissions of buildings and its market value. As proposed lower valued buildings will proportionally pay far more CRC tax than valuable investments.

For investors, the main worry is that the cost of the Green Agenda (Building Regulations are becoming ever more expensive) is eroding asset values dramatically. There will be winners and some dramatic losers.

Retrofitting or rebuilding buildings, which are, say 20 or 30 years old, is becoming increasingly expensive. For example, any office with less than 5 years lease un-expired, in a market where the PRIME rent is less than £20 per sq ft, sits on a negative land value!

Investment

Property not peanuts; world peanut prices have exploded by between 60% and 100% in 2011. Go short in peanuts in 2012, but long on well-let commercial property.

With average investment income yields at 6% pa, and with general inflation expected to be below 2.5% for the next 5 years, a real return of over 3% looks very attractive. Buy whilst stocks last!

Commercial property investment will have the best decade in real terms of performance (apart from the 1990s) since the 1960s. Total returns will out-perform inflation.

It is hard to see gilts repeating the performance of the 1990s, with yields starting from such low levels. Yields would have to fall even further to even achieve a 2.5% real return. More likely gilts will struggle to achieve a positive real return at all, leaving property looking like a valuable asset class in a diversified portfolio.

These are conditions are not normally thought to favour property returns, but low inflation has typically been good for real property returns, as inflation is not fully passed on into rents, and therefore nominal returns remain relatively high.

But be beware; for older stock, in poor locations, investment asset depreciation (especially for non-green buildings) is widespread.

UK -- The Big Chill

At the final lunch of 2011 we were treated to an insightful, if at times dispassionate, talk on the economic prospects for the UK by one of the foremost economic commentators of our times: Bronwyn Curtis, OBE - Head of HSBC Global Research.

Earlier in 2011 Bronwyn had spoken about the prospects of "a lost decade" which the eminent Martin Wolfe of the FT also has used in his economic commentaries.

The UK already has had 12 quarters of recession along with anaemic growth leading to the economy "bumping along the bottom". The last 7 recessions experienced by the USA had all been 5 quarters. With very low growth, GDP is still 4% below the 2007 peak in the UK, slightly ahead of the USA which is 5% below their peak and Europe at 6.2% below its peak. The recession developed as a result of debt in the private sector which now has moved to being a public sector debt problem.

Our speaker took us through a wide range of negative economic indicators for the developed world, including the more recent downgrades of anticipated growth from 2.3% pa to 1.4% pa. In contrast, growth forecasts for the emerging markets had slipped from 6.2% pa to 5.9% pa.

Why are these indicators so awful? This is a combination of: policy makers having to issue cheap paper whilst remaining highly leveraged; oil prices staying up as a result of emerging market growth leading to even greater tax on consumers and the fact that 50-60% of the UK’s and USA’s economies being consumer driven with 9-10% being unemployed. The UK can expect a further loss of 300,000-700,000 jobs in the public sector which will have been cut by 16% in real terms by 2016.

The conclusion Bronwyn offered us fitted the billing. We in the UK should grow old gracefully and accept we will be worse off, or, emigrate. Brett, like the speaker, an Australian ex pat, asked should we move to their home country. The response was we should learn Mandarin.

As some pulled their Christmas crackers during a lively Q&A on the prospects and implications of Europe consolidating or breaking up in part or whole (very hard to do and massively disruptive) others could not get in a festive mood. Given there appears to be a 50/50 prospect of 17 European countries having their credit ratings reduced within 90 days, 2012 is likely to offer little cheer. It was encouraging to hear our Spanish colleagues stressing the importance of strong links and economic ties with the UK for their country.

London Chapter treasurer John Dallimore, who persuaded Bronwyn to speak, made the observation in his opening remarks that perhaps the talk was 2 or 3 days early. How observant given the Cameron veto over the following weekend. We now wonder what will unfold in UK and Europe in the next 90 days and decade beyond. Where is growth to be found beyond China and the emerging markets? Answers, thoughts and observations welcome . . .

Mark Loveday
December 2011

What’s in the Future for our Nation’s High Streets?

We would all have been aware that there is a problem with extensive, sometimes almost overwhelming, shop vacancies in virtually every town in the Country, and with well-known trading names disappearing at an accelerated pace. At our lunch on 27th October we were fortunate to have Andy Godfrey, Public Policy Director, Alliance Boots, to give us his analysis, an analysis from probably the most-represented retailer on the High Street.

Whilst the proximate cause may often lie in the current depressing economic climate, Andy made clear to us that the roots of change go much deeper: the rise of supermarkets, out-of-town retailing and mail and internet shopping being the prime movers. These forces have been at play for two or three decades already and will not go away, with the impact of the internet in particular likely to grow considerably. Internet driven sales have increased from 5% to 9% in the last 10 years and some predict a doubling again within a decade. It is also the case that the very largest top 30 centres have prospered at the expense of the rest of the High Street locations.

Against this rather dark background, Andy suggested that people are rather fond of their local High Street; this was manifested in some local responses during the recent riots. Perhaps they fulfil a social as well as a commercial role. If that is right, there is a need to rethink the detail of that role, and not just in terms of retailing. Hopefully the emerging Report by Mary Portas will address the right issues. The re-thinking needs to take account of changing demographics, in particular more older people (your Scribe regularly shuffles round Woking looking for the spectacle shop) and, sadly, more have-nots. We should build on two factors: first, whilst many goods can be commoditised, and thus sold indirectly, and many, particularly fashion, rely extensive comparison, there remains a huge range of goods that people wish to ‘touch and feel’ before they commit themselves. Secondly, the concept of a ‘shopping experience’ is socially well-established, and that experience does not just include the purchase of goods. In Andy’s view the recipe for success, when times improve, will depend upon an emphasis on advice and service, providing room for individualism in the products and services offered, offering convenience of access and a safe and welcoming environment, and, above all, the fostering of the sense of ‘community’ that the best High Streets provide; these will be the crucial factors in encouraging footfall.

However, a successful High Street in 2020 will be very different from today’s offering and there are great difficulties in getting from here to there. Not the least of these is fragmented ownership. Realistically, this will only be overcome if Local Authorities take a leading role in ‘championing’ the high street, presumably justified by social importance. It will also require changes in Central Government Policies, laws and Regulations.

The vision offered by Andy met, I think, very wide acceptance. The questions really reflected the willingness, and ability, of all the parties concerned to overcome the barriers to delivery of the vision. Andy was quite upbeat about this, not least because there is an underlying commercial logic; not all will succeed, but that logic should give a fair wind. It was that that encouraged your Scribe: we had a hard-headed, but soft-spoken and entertaining, businessman espousing the vision, not a politician or academic.

Michael Mallinson

NAMA – part of the solution, not part of the problem

How do you bail banks out the hole into which one subset of the ‘Masters of the Universe’ had driven them? The Irish Government, faced with a bigger problem as a percentage of GDP than most, chose, rather than a bank-by-bank resolution, to place a large proportion of the problem property loans into a specially formed Agency, NAMA, tasked with managing the resolution of the loans in an orderly manner over 10 years. At our lunch on 15th September 2011 we were fortunate to have Ronnie Hanna (Head of Credit and Risk for the National Asset Management Agency) to tell us how this project was working out.

The size of the task is prodigious, £72 bn of loans, 60% of which concerned Irish property and 32% in the UK, including Northern Ireland, with the balance in USA and Europe. Ronnie made clear to us that the fundamental principle for NAMA was orderly disposal or working out, with no fire sale element. In principle, the scheme is neither a bail-out of borrowers, who will be expected to repay the loan eventually, nor is it a bail-out of the banks as they will hold the losses on ultimate wind-up. This principle is key to the relationship between NAMA and all the parties involved; whilst, in reality, it will not be wholly achievable, the discipline it brings is crucial to the project.

The majority of loans have remained in the legal ownership of the lending bank, but, for each loan, the bank is required to prepare a realistic ‘business plan’ under the eagle eye of NAMA. Once the plan is agreed, NAMA is able to issue a ‘letter of support’ which will help the bank in dealings with third parties. If additional funding is required to oil the resolution, and it cannot be raised elsewhere despite the ‘letter of support, then, provided that it is in line with the business plan, NAMA is able to provide it, on commercial terms. It is a feature of the scheme that the banks, who do much of the work, are left with some of the upside if things go well; whilst, to some, this seems like rewarding failure, Ronnie argued that it is pragmatic to give the banks some incentive.

In some of the questions that followed Ronnie’s talk, there was an undertow of criticism that NAMA was sometimes getting in the way, perhaps an inevitable danger for an intermediary interjected into a previous commercial relationship. Ronnie was vigorous in his defence. Often complaints amount to a criticism of a price being demanded by NAMA, but investors must realise that they are not picking over a corpse; his task is to secure optimum resolution, and his needs will often quite properly not match the particular wishes of some purchaser; so be it! He was confident that the ‘assets’ confided to his care would, in due course, almost all find proper resolution, perhaps sometimes following co-operation with other agencies of government; there may be a small residue of land that will have to revert to, or remain as agricultural land, but that will be trivial when compared with the starting position.

Ronnie was very firm that NAMA was proving to be part of an innovative solution to what had seemed, at the outset, to be an unbearable problem. Your Scribe has always had the prejudice that the Irish were a bit tricky, particularly in loose play around the back of the scrum. Ronnie convinced him that, here, they had found an interesting way of getting the ball away in more profound circumstances.

Michael Mallinson

Do Greener Buildings Really Mean More Value?

Whilst your Scribe can safely be thought to be ‘out of touch’ in most things, he senses a continuing scepticism amongst many, perhaps most building owners about the ‘green’ agenda; it is widely seen as just one more impediment for landlords. At our Lunch on 19th May 2011, George Fowkes, Co-Founder of Low Carbon Workplace, sought to convince an audience that was by no means as sceptical as I have suggested that greenness can be seen in a positive light.

The Government has set ambitious carbon targets: an 80% cut in emissions by 2050. There is no doubt that property, contributing 20% to current emissions, is seen as a soft, as well as a necessary target. Perhaps justifying a negative perspective, potential taxes are in place to bully, and ‘Display Energy Certificates’ will be seen as a tool to shame. However, the real driver for change will lie in energy-pricing and the anxiety of occupiers, who ultimately meet energy charges, to minimise a growing threat to their bottom line.

Whilst BREEAM assessments and debates about ‘embodied carbon’ address important issues, George expressed the view that these are unlikely to be real drivers of value in the market place. He suggested four headings that might be:

1. Access to public transport. If Government continues to squeeze the cost of motoring, which it is likely to do to the bounds of political possibility, less dependence upon it will be attractive to occupiers in attracting staff and customers.

2. Buildings that offer ‘smart passive systems’ – not too much glass, high ceilings, open spaces etc. These will offer tangible advantage to occupiers.

3. Efficient active systems, particularly good zonal controls so that energy use matches closely actual building use, mitigating waste. (Your scribe has just bought a kettle that boasts its ability to boil ‘only the amount of water you need’ – but he still overfills it!)

4. Landlord engagement with occupiers. For example contractual parameters for energy use, with costs and benefits being shared. The equipment of buildings with extensive metering and monitoring systems will be a selling point of value.

Rather than an incidental, George sees energy use and cost as becoming an active, and perhaps disputatious, component of the landlord/tenant relationship. If this is correct, landlords need to develop strong ‘test as you go’ methods, not only in developing and refurbishing buildings, but in their continuing running.

One questioner raised the implicit conflict between building conservation and listing, and energy efficiency. It was George’s view that the latter is now the louder voice, and English Heritage will have bend to meet that reality. Another questioner, whilst accepting George’s argument in high cost/high demand London, wondered whether the value issue will prove so real in the provinces. George refuted this view, arguing that growing energy costs will prove painful wherever they are incurred.

In some cases, reducing energy consumption may have quite high initial costs, but George left us with the view that most buildings present opportunities for short payback with basic and simple stuff - a positive message to end a lucid and entertaining presentation.

Michael Mallinson

State of the Property Finance Market and Alternative Sources

When addressing our Lunch on 17th March 2011, Wilson Lee, Managing Partner of First Growth Real Estate Capital LLP, was confronting a topic of close interest to all his audience – how and when will the capital markets return to normal?

He started his talk with a resumé of how we got into this pickle in the first place. It might be summarised as a thorough exercise of what I paraphrase as 'due indigence': people failed to think through the inherent risks of domino effects in the structures that were being created, and didn’t build the contracts properly. When the music stopped, financial institutions across the Western World found themselves short of several chairs.

The political and fiscal responses, and uncertainties about what those responses might be, led, perhaps inevitably, to a capital market distorted in many respects. Banks are still in a state of flux. Whilst many US Banks have 'marked to market', that process is, in Wilson’s view, by no means complete in Europe; this implies more pain to come, and more reluctance to lend. In Europe, around £260bn of bonds fall due in 2011/12. Whilst some of these may be extended, there will be a very substantial pool to be re-financed in what will be a highly unfavourable climate. Wilson’s worry is that, as and when interest rates start to rise, lender tolerance will recede. This will lead to increasing defaults, cranking up the pain to the Banks. There are signs of this already as applications to the ECB for emergency loans have exploded.

Against this torrid background, investors crave liquidity and security; if both are not available, prices take a big hit. In property terms, we have moved from a position of the spread between prime and secondary property being too narrow during the bubble years to being too wide today; as an aside, Wilson thought that this might indicate some opportunities.

It was a testament to Wilson’s delivery skills and the value of what he was saying that, up to this point, there had been no suicides amongst members or guests. How will it all be resolved? Wilson was clear that there are more failures to come before the system is purged. There is, however, no shortage of capital in the world – witness, for example, Sovereign Wealth Funds. There is fear, and there is a mismatch between investors’ expectations and the returns that are actually likely to be available to them. Fear should recede if governments take steps to encourage wealth creation, both at the macro-economic level and in local initiatives. Wilson was also optimistic, I think(!), that Institutions will identify the opportunities open to them whilst the Banks occupy the Recovery Ward. In case that made us happy, however, Wilson suggested that we were not yet half way through the trough, if the previous upsets for capitalism were anything to go by.

Michael Mallinson, Scribe

The Year of Living Dangerously

Our luncheon guest speaker for January 20, 2011 was Walter Boettcher, Colliers International. The year 2010 was better than most had forecast. However, he said there are a number of downside risks for 2011 –

• Inflation - Is it the wrong type? Main headline inflation is being caused by oil, food and commodities as a result of demand from emerging markets, and this is forecast to continue.

• Eurozone Collapse – sovereign defaults and the possibility of a country going bust.

• Currency Wars – ongoing tension with China, the US and the rest of the world.

• Food Risks – risk of reduced production and continued increase in demand from population growth.

• Natural Disasters

UK Property Market -

There was a big bounceback in values in 2010. UK was perceived to be cheap internationally because of the big correction and the weakness of Sterling. Foreign investors will continue to drive the market forward for the best assets – almost becoming ‘forced buyers’ as UK is considered to have ‘safe haven’ status with a lot of investors and known to be liquid and transparent.

Secondary assets are vulnerable to a potential pricing readjustment, especially if the banks ‘open the floodgates’ of putting distressed properties on the market. For NAMA there was no real focus yet. However, Lloyds and RBS were moving forward as they now have the teams in place.

The HOT sectors were Central London and Supermarkets. The Not So Hot sectors were secondary Industrials. Walter’s Hot tip was ‘sell secondary industrial with short income now, because people are over paying for it’.

The concerns over property and inflation were making people question if property was truly a hedge against inflation. Do equities actually provide a better bet?

Asset management in 2011 will be the main factor that will drive property performance.

Total return forecasts	2011	2012
Colliers:	7.5% pa	10.6% pa
Derivatives implied return:	4.5% pa	2.5% pa

Respectfully submitted,

Shailendra Shah

UK Market Pauses for Breath

An Analysis of Diverging Performance Trends

Phil Tily, UK and Ireland Managing Director of Investment Property Databank (IPD – www.ipd.com), does not, on first appearance, seem very like an angel – lacking the obligatory wings. However, he fulfils the function of recording angel for the commercial property investment industry. At our lunch on 9th December 2010 he gave us a masterly thumbnail sketch of the view this task gives him of the UK market and its drivers. At the macro level, his analysis of property portfolios demonstrates two things: over extended periods, property at the asset level loses value due to depreciation – ‘gather ye income whilst ye may’, but within that trend changes in investor sentiment leads to considerable variation. Secondly, the various sectors of the market tend to move in tandem and he rather wonders whether the investor’s mantra should change from ‘location, location’ to ‘timing, timing’; it seems clear that, in good times, all benefit, but in decline strategy becomes crucial. Within that long term framework, in recent times values in the investment markets that he analyses have recovered to levels that are consonant with a long term trend – way below the speculative peaks of early 2007, peaks driven by easy borrowing and retail commoditisation of property, but above the low point of June 2009 and now much on a par with the early 2000s. In response to a question, he relied upon his heavenly status and was not willing to be drawn on whether that implied ‘fair value’. This recovery, however, now seems to have lost momentum. Has it run its course and are we now at a point of inflection for investor sentiment? Is this the point for momentum investors to leave the room? The bear factors include the amount of debt not yet unwound, the prospect of rather extended economic weakness, doubts about the ability of the private sector to take up the slack arising from government retrenchment and, perhaps, the prospect of government bond yields rising. Against this lies the apparent weight of overseas money still seeking UK assets.

Looking at the market at present, and perhaps belying a little his dislike of ‘location, location’, it seems clear that the focal point of further strength in the market will be London-based. London and the South East seem to be the only areas that possess the economic strengths that will enable growth in the new economic climate; other areas will suffer from government retrenchment, but have little to fall back on. London, less so the South East, is also the area that foreign investors find attractive. As to prime versus secondary, whilst, by definition, prime rents are more secure and prices hold up better over time, the yield available on secondary property seems to him to be rather tempting; if total returns are going to be less than in the past, income becomes more significant. Beyond that, whilst the price differential may widen alarmingly at times of trouble, it narrows when bluer skies return. In the London office market there are also interesting possibilities in changes of definition. The all-singing and all-dancing large plate dealing floors may, with modern wireless technology, seem over-specified; modesty may command a premium. Risky, perhaps, but tempting.

Finally Phil gave us, not a forecast, but an interesting statistic (not that his others were uninteresting!). His research shows that, in the 3 years following an Australian win in the Ashes UK values rise by 4.5%. After an England win they rise by 16%. There was only one person in the room willing to short UK property.

Michael Mallinson, Chapter Scribe

Like Nowhere Else

'Like Nowhere Else' - London's West End saw strong growth in 2009 and 2010. Is it set for further growth? Or could growth stall and reduce in 2011 and beyond?

Richard Dickinson gave us an erudite overview of the economic and political environment and prospects for the West End. He set out the positives behind significant strong performance in the midst of recession. At the same time questioned, with the era of austerity upon us, how can the West End continue to invest to keep it as a World Class destination?

Some of the answers lie in the continued success and support of the private sector to the Business Improvement District. Property owners could provide matched funding to the expected BID renewal at the end of 2011. The private sector is however already facing the 2% Business Rate supplement to help fund Cross Rail. This overall £16bn investment should add 30% capacity to tube travel. Westminster is examining ways to retain and reallocate rateable values. It has already been innovative in agreeing S106 credit offsets for investment in the public realm. Tax incremental finance is a medium term possibility for 2013 onwards.

The positives for the West End in 2010 are an 8% pa increase in sales, record rental levels, plus significant investment in flagship stores. These positives being supported by low interest rates, relatively strong economy (65% consumer driven) and growing tourism visits (25% are overseas visitors with a further 20% of visitors from the rest of the UK) helped by the level of the £. Also with a strong bias towards fashion the retail offer is more resilient to the impact of on line spending. The issue is the extent to which these factors continue to underpin growth or whether the VAT and NI increases in 2011 will slow or even reverse these trends.

In a lively Q&A the wide ranging discussion covered the impact of the 2012 Olympics, other suburban and out of town retailing, and whether the West End is and will struggle to maintain its identity. With rents escalating where is space for the street trader and independent retailer? Can the New West End Company ensure the West End keeps its true London identity and heritage, whilst being a destination for the worlds' and UK's leading branded Retailers?

Michael Mallinson
Scribe

Sovereign Debt Crisis

and the consequences for real estate
a presentation by Jose Luis Pellicer of the Research Team at AEW Europe

I have never had a serious operation, but I recalled my limited experiences during Jose’s address to our lunch on 16th September 2010. You are woken after the operation, with the surgeon staring at you. You, at first, wonder whether he is St Peter or the other chap, but then he reassures you that the operation went well. After a moment’s relief, your thoughts then turn to how awful you feel and how impossible it will be to recover. Well, Jose assured us that the operation of rescuing the financial system had gone well -– "Armageddon avoided" as he put it. But the cost has been vastly over-extended government finances in most of the major economies. Recovery involves the unwinding of that. His prognosis was that the job would take at least another 12 to 18 months, with the pain making physiotherapy look a doddle. Should governments not address the issue and default, then that would be even more painful in our sophisticated market economies. In response to a question, whilst there are clear risks for Greece, and, to a lesser extent, for Portugal and Ireland, many others who offer poor stats may not be as weak as they seem. For example, in Spain its 20% unemployment figure includes many immigrants who may return home, and household indebtedness is much less than in the UK. He therefore presently sees little risk of a domino effect to major economies – provided that we take the medicine (or do the exercises!).

Jose could not see the cavalry arriving in the form of non-Western economies. South America is too small to be material, and China shows every sign of over-heating – which would be very negative for Germany and Eastern Europe.

The only realistic tool available to most governments is to reduce expenditures; waiting for economic growth to rebalance the books is not a viable option. Our concern must therefore be on the effects of this solution on real estate.

In some ways, we have been in a sort of ‘phoney war’ since the immediate crisis was stemmed. Not unnaturally, the immediate effect was to make investors risk-averse. This favoured, perhaps paradoxically, government bonds and also apparently-secure forms of real estate, thus buoying prices, but Jose doubts whether that will be sustained. The occupation market is bound to be hit and this must, surely, cause yields to soften – perhaps considerably. He particularly drew attention to the retail and ‘logistical’ market. Demand is bound to fall, perhaps dramatically. In many parts of Europe there are already worrying levels of retail over-supply. One questioner asked whether the weight of money could see property yields harden however due to inflationary fears; Jose thought not.

All-in-all, Jose was not a bearer of good tidings. If the issues are faced, there will be pain, but recovery will come. He was asked whether the process might not become politicised; whilst accepting that this was a risk, and, inevitably, cuts will require political decisions, he was optimistic that politicians would not worsen the situation. That was about the only positive note your Scribe was able to write down, plus, of course, the pleasure of hearing a speaker who was master of his subject. We wish Jose well in front of a ‘home’ audience when he speaks at the inaugural lunch of the new Chapter in Madrid on the 29th September.

Michael Mallinson
Scribe

Private Sector Climate Change Solutions

“Private Sector Climate Change Solutions: Do governments even need to get involved under the Copenhagen Accord?” a talk to Lambda Alpha International by Dr. Douglas Crawford-Brown, Executive Director, 4CMR, University of Cambridge Sustainability, Pell Frischmann (June 24, 2010. For a summary of Dr. Crawford-Brown's presentation, click HERE. [.pdf]

Conservation Significance:

Have we lost the plot? What's it all about ???

Anthony Walker is co-author of Building Sustainability in the Balance (published by Estates Gazettte) and founding partner of DLG Architects, Accredited in Building Conservation with a particular interest in the 20th century and conservation management.

Clearly, he is a man who cares deeply about the conservation of the built environment, and he used our lunch on 29th April 2010 to express his concerns that the regulations against which we, in Britain are trying to do the job are not, to use the current phrase, "fit for purpose". The recently-introduced PPS5, Planning and the Historic Environment, has added to his anxiety. The core of the problem, as he sees it, is that the rules, and the guidance issued by English Heritage use words that are highly subjective and capable of extensive interpretation. Whilst this may bring work to consultants and lawyers for years to come, it militates against owners and developers who wish to engage constructively, and is not conducive of consistent outcomes. The result of all this is that local authorities tend to become formulaic in their approach, with great divergence in the lines that they take. The whole process is being driven, in Anthony’s view, by "order" rather than "ideas". In part this reflects, of course, the training of conservation officers, few of whom understand architecture, or design.. They thus feel unable to hear and interpret ideas in the language of architects. There is also a need for all involved in conservation to better understand the economics and commercial realities of property ownership and different uses.

This rather rote-driven approach becomes of particular difficulty with 20th Century buildings. The diversity of architectural language developed and deployed in buildings of that century is particularly impenetrable to a rule-based approach. Anthony gave us the particular example of the Commonwealth Institute building in Kensington. In a sensitive location abutting Holland Park, its most striking external feature is its roofline. However, the building contains extensive detailing in both design and lay-out that reflects its historical genesis. In discussions about its future, these all seemed to get swept away, with only the roof becoming the icon!

In subsequent discussion, comparison was made with Europe, particularly France and Spain. The Spanish, whilst being meticulous in conserving valuable detail, are far more willing to consider modern additions provided that thought is given to how the original architect might have treated the issue; they do not seek pastiche. The French seek to conserve much less, but what they do conserve, they conserve thoroughly and well. This led Anthony to argue that our approach to conservation seems to far too broad-brush, with everything including the kitchen sink being swept in.

As a personal aside, the debate reminded me of the anguish of engaging, in education, with Ofsted; when dealing with intangibles, officialdom has problems. Judging by the furrowed brows, Anthony’s talk gave us some cause to worry, but it is always a pleasure to hear speaker talking with passion on his subject

Michael Mallinson

Lighter, Quicker, Cheaper

‘Lighter, quicker, cheaper – The case for more timely, less capital intensive, more human-scale development,’ a presentation before the LAI London Chapter by Eric Reynolds, Founder of Urban Space Management.

Pow! Straight between the eyes! Eric confronted us, at our lunch on 23rd March 2010, with the idea that, when it comes to development, we all think too big. He has been practising small-scale, low-cost, high-speed development for many years, with considerable financial and productive success; he wonders why most of us get caught up in 'comprehensive' development, always seeking to expand both the envelope of the sites with which we deal, and their conceptual framework.

The answer to that question lies, for him, in the mindset of the professionals involved. Perhaps reflecting one of the fundamental fallacies of professionalism, everything has been made more complicated than it needs to be; whilst he didn’t make the charge, more complication may lead to more fees. Thrusting aside such a base motive, there is a natural tendency amongst intelligent people to make things ever-more complicated. We have fallen for that tendency, with deleterious effects.

In the terms of the development process, it has greatly expanded the timescale for renewing our urban fabric, and increases the risk that, by the time a development is completed, the world will have moved on in some important respect. The larger new structures created may also have shorter productive lives, thus accelerating the cycle of disruptive development. Most existing structures, well-set in their social environment, are surprisingly adaptable, and adaptation may be better, and more profitable, than reaching for the demolition ball and trying to make the figures work by enlarging the enterprise. Whilst 'sustainability' has rightly become a buzz-word, large buildings encourage the restriction of that word to the building itself, rather than building plus environment.

Apart from this, big tends to be less socially conducive -– large tower cranes show a lack of respect for the local society into which they are introduced. Large developments also encourage the developer to think too much of the interior, and too little of the urban context, in social terms, into which the building is being inserted. In my own experience, I recall my dismay at the pot-holed roads and cracked pavements that surrounded some gleaming new creation. I blamed the local authority, but Eric might argue that I should have seen the beam in my own eye.

Having been pushed onto the ropes by Eric, some of us tried to punch on the rebound with examples of where urban renewal had to be thought through on a large scale, and, of course, large space needs for single occupiers. Nevertheless, I sensed that he made some progress in his amusingly presented challenge; maybe we need to plan things in a large framework, but perhaps most occupiers are telling us that 'smaller is beautiful'.


Michael Mallinson

To get a copy of the PowerPoint presentation please go to the link below, which is available through March 31, 2010:

Download presentation here

Investing in the Recovery

"What is Hot? And What is NOT For 2010 and Beyond?"
a presentation by Dr Tony McGough, Global Head of Forecasting DTZ.

Tony did well in flying around the world in twelve minutes analysing real estate investment opportunities. His talk had several dimensions -– risk and length of investment. Tony felt that investors could handle the big roller coaster rides over the medium term (ten years). However, if one was just looking at the short term (up to five years), then one should go for stability and minimal risk.

For the Asia Pacific region, China fits the roller coaster ride for the medium term whereas Australia was more stable and for the short term. The developing economies were the ones that would see booms and busts in the development cycle as well as suffering from political risk. China has good potential long term growth. The second tier Chinese cities with circa 40m people should be on the radar screen. Retail rents here did not fall.

Continental Europe was a tale of two halves -– the East and the West. Central and Eastern Europe were badly hit in the downturn as secondary property prices were very expensive. For the medium term, places such as Prague and Warsaw were identified as opportunities, not Bulgaria or the Ukraine. Go west if one was looking for stability and if one did not have the stomach for risk.

The UK has recovered with prime product leading the charge. For IPD, all commercial property has seen a 100bps fall in yields, but in reality secondary property was not worth this adjustment. One needed to be mindful that the UK would have a slow economic recovery and would have to pay off all that government debt.

In the Americas, US rents have generally declined, with New York City as the exception. One needed to be mindful about the general lack of planning controls in the US and its impact on supply. South American governments needed to become less corrupt if more property investment was to happen there.

Overlaying all of this was the panorama of world global cities. They were definitely in a class of their own. Tony felt that the historical reason of why they existed was a good enough reason for their continued prosperity. London City rents were much closer aligned to world GDP than domestic UK GDP. London, Paris New York City, Frankfurt (which apparently keeps trying), Hong Kong and Tokyo were the main global cities. Shanghai was an upstart. Dubai was a city which forced itself on you for global attention, but had not really made the grade.

Where to invest and where to avoid was all down to the degree of property development, how it could be controlled, the security of income and the specific country. Investors needed to have their eyes wide open when investing in developing economies. If one has the stomach and the requisite timeline, then there were opportunities on a selective basis as outlined above.

DR. K. A. SIERACKI

The Spanish Property Market

'The Spanish Property Market – is the fiesta over for the time being?'

Imma Vall, Associate at Property Market Analysis (PMA), has been analysing the Spanish Property market for the past 5 years, and she demonstrated to us in her talk at our lunch on 10th December 2009 her mastery of the subject, giving us her ideas with flair and humour – but it was a bit like being a cheer-leader at a wake!

Spain has suffered more than most in the current recession, with unemployment approaching 19%, economy decline of 3.8% and running, and profound Budget deficits – it almost made an Englishman feel he was well off and should be thanking Alastair Darling. Imma had no doubt, therefore, that the fiesta was indeed over; it was now the time of the hangover which she could see lasting for 2 years at least. Addressing commercial property, there was an over-supply of offices and retail, with many prestigious schemes being mothballed whilst part-built – ghosts that may haunt the Spanish skyline for some time to come. For built-out vacant office space, lettings were a triumph for the letting agent, and of only partial value to the landlord as rent levels have tumbled c 20% and rent-free periods of 1 year in a 5 year lease were not uncommon. In retail, the larger Spanish companies were surviving, but their life-support comprised closure of units in Spain and reliance on foreign units; it was not uncommon for new shopping centres to open with 40% occupancy – 60% would be a dream. Consequently developers are in trouble across the board.

Against this depressing back drop at the 'real' level, there was a surprisingly ebullient investment market for anything of quality -- prime site, good tenant. Beyond that, darkness, but, for the farsighted the outline of genuine value. However, if you need finance, no way! Bank lending is effectively unavailable; even for a good client and a bank wishing to help, there is no possibility of syndication, and thus no deal. To those at the lunch, this was something of a surprise, as our impression was that Spanish Banks had come out quite well from the 'credit crunch'.

Looking to the future, Imma reminded us that the Spanish property market has always been more volatile than most. In large part this has arisen from the economic dominance of construction companies – give them money they will build, without much apparent consciousness of market cycles. In answer to a question, she thought that this might continue to be true in the future – a cautionary thought for a putative investor. However, for commercial space, particularly offices, Spain now had a considerable price advantage; present value levels, anyway in good locations, should, in principle, only go in one direction, but the date of going was not in next year’s diary. Nevertheless, we should not forget that Spain is often the point-of-entry of choice for the burgeoning South America economies.

Several questioners raised the problems of the Spanish Residential market. This, Imma agreed, is in greater gloom than commercial property, with a profusion of its own mothballed ghosts. There was little chance of the Government acting as ‘white knight’ because politicians have chosen to demonise residential developers. A 4-year recovery profile seemed the most optimistic possible.

Not the happiest of lunches, then, but in the best of company, and with a talented guide to the body under dissection – No! Not as bad as that! It will come back to life. Really! And perhaps the best time to buy a corpse is just before it revives.

Michael Mallinson

Visions of the Future

The Global Property Market in 2030 by Dr Angus McIntosh, Partner & Head of Research King Sturge – International Property Consultants.

It is one of the great human delusions that we should like to know what the future holds. Thus it was that suitably delusional Members and their entirely sane guests attended our Lunch on 29^th October to hear Dr McIntosh lift the curtain on what is in store for us.

Fortunately, perhaps, Angus was wise enough to tease us only with scenarios. He explained that he is participating in a project sponsored by the RICS Foundation that addresses the future under the title of his talk. The project is not yet completed, and he felt unwilling to reveal the precise level of the IPD Property Index on 1^st April 2030; rather, he thought it better to discuss some of the key issues that might drive that figure. He identified six such drivers:

Demographics. During the period under consideration, the global population would continue to grow, perhaps nearing a peak of 10 billion. The numbers alone will put enormous strains on the Earth’s resources, particularly of food and, as one questioner made clear, water. The rate of growth would, in itself, be significant, but so also would its distribution; would the areas of high growth also produce the ideas that would help them manage the strains they would feel; there are grounds for pessimism.

Economics. Would governments follow, and would their populations allow them to follow, policies that would reduce economic inequalities? If they did not, there would be increasing risk that excluded peoples would, under the pressures they would experience, revert to various forms of obscurantism, not least religious extremism.

Governance. The principles of governance followed would be a decisive factor. For all its weaknesses, the European Union is, conceptually, highly enlightened, seeking to follow a broadly inclusive ethos; compare that with the ‘gated’ and protectionist ethos in most parts of the World.

Environment & ecology. We are all only too aware of Climate Change. Whether or not governments can bring the issue under control, changes will occur that will be highly disruptive to current patterns of, particularly agriculture. These may or may not increase the tendency towards food shortages, but they will certainly complicate solutions. Under this head, Angus included the effects of pandemics in congested and mobile populations.

Technology. Potentially more positive, the pace of technological change continues to accelerate; by 2030 we shall have at our fingertips technologies that we do not presently dream of – he particularly drew out bio-technology and drugs. Will these inventions be divisive or inclusive?

Information. Information is growing very rapidly; because of the internet, its distribution can be seen as ‘flat’. It can be accessed by anyone from anywhere.

Using these ideas, Angus sketched three scenarios for each of Europe, Asia, America and the World:

EUROPEAN SCENARIOS

Bastion: Depression; Oil and resource collapse, social inequality, rising violence – cities like fortresses.

Web: The triumph of global corporations, economic success, but sustainability only a buzz word – urban sprawl, housing inequality, gated communities

Zion: Carbon neutral, high quality of life, equality under the law, culture and recreation dominate

ASIAN SCENARIOS

Orient Express: China dominates; Australia and New Zealand sustainable expert; India faces corruption; Infrastructure problems

United States of Asia: Mass urbanisation; Social unrest; Piracy of things and intellectual property is rife; only Singapore and Hong Kong lead the sustainable agenda

Broken promises: Increasing complex social problems in China and India, only Australia and New Zealand have clean technology; City planning in disarray and sustainability for many (in smog filled cities) very low priority

NORTH AMERICA SCENARIOS

Happy in the dark: Major worry over energy shortages and its repercussions on the whole of American society

Oil & Vinegar: There is a retreat behind borders and buildings. Social inequality & migration a major problem - political tension is rife,

Micro fanaticism: At a local level sustainable leadership dominates society and drives national governments.

GLOBAL SCENARIOS

Free trade and technology

VERSUS

Unrest and unequal societies, hence social tension - perhaps with religious fundamentalism

VERSUS

Knowledge, social values and a high quality of life. A sustainable future.

Because of the profundity of the issues raised by Angus, I have allowed my notes to be more extensive than usual. Whilst many of the points would have been in our consciousness already, to hear them drawn together so coherently was a privilege for us, and gave them perspective.

Michael Mallinson