EUROPE NEWS: The Google effect

Google had been occupying the front pages of national UK newspapers in the days leading up to the annual PERE Summit amid a row about paying UK taxes. Matt Brittin, who heads up the Internet search giant’s business in northern Europe, was at the forefront of that argument, having previously given evidence before a House of Commons select committee – made up of elected members of parliament – that grilled him over the company’s approach.

Fortunately, no tax officials were present at the Summit, held at the Marriott Grosvenor Square Hotel in London on June 4 and 5, as Brittin addressed some 300 delegates about Google’s needs when it comes to being an occupier. Moreover, he set the tone for the two-day event with talk of how the “consumerization of IT” and the arrival of an “asset-light generation” are part of the new reality that property investors must come to grips with – and fast.

According to Brittin, the more things that people can store online, the less stuff they need at home or in the workplace. Just as 20-somethings aren’t buying physical books or records anymore, the availability of software and IT solutions is leading companies to invest in non-physical assets rather than filing office space with cabinets and storage areas, he explained. It was an interesting theme that got delegates talking during the first coffee break as they pondered how their own strategies for real estate could fit with trends going on around them.

Google itself provides an interesting case study on how fast-growing companies want to operate nowadays. Flying in the face of the belief that cutting-edge companies would encourage staff to work from home, the company is an evangelist for the old-school approach of wanting its staff together in an office where employees can trade ideas.

For that reason, Google’s brand-new £1 billion UK headquarters in King’s Cross will have a wide range of breakout areas, where it believes many a ‘Eureka’ moment can occur. The new base will come with a top-notch BREEAM environmental rating, plenty of bicycle bays and a so-called ‘promenade’. It is all about “connecting people,” Brittin noted.

Brittin also made the telling revelation that the new headquarters will be densely populated, with between 12 and 13 square meters per employee against the London average of 15 square meters per person. “We try to ram people together and mix them up as much as possible to make ideas flow between them,” he said. “We think it is really important to be together physically.”

Other highlights of the event, which was chaired by David Brush of Brookfield Asset Management, included an interview with Brendan McDonagh, chief executive officer of Ireland’s National Asset Management Agency. McDonagh told delegates that the state organization was keen to strike more deals with private equity real estate firms and harbored ambitions to be more innovative in the types of deals it makes.

Meanwhile, Pierre Cherki, head of alternatives and real assets at Deutsche Bank Asset & Wealth Management, revealed that the bank was looking at a number of higher-yielding strategies given the ‘significantly higher interest’ among investors since the beginning of the year.

Indeed, how investors accessed Europe nowadays was another main theme running through the event. Joe Valente, head of research and strategy at JPMorgan, illustrated for PERE’s audience how the rigid investment criteria of large institutions actually was leaving core-like real estate in Europe’s major markets to be picked off by opportunistic investors. “These investors are looking for the same thing: income-producing, Grade A assets in CBD locations,” he said. “That has moved pricing at the core end, and now there are no bargains to be had.”

Michael Spies, senior managing director at developer-cum-fund manager Tishman Speyer, noted that Europe’s occupier markets on the whole are poor. “Can you respond to what is happening?” he asked. “If you can get in front of a Google, you will be okay. If you can provide real estate to meet the needs of businesses that are competitive, that is an advantage.”