ISA Briefing: Energy back as key in real estate outcomes
We property strategists are accustomed to working with traditional real estate variables such as net absorption, rental growth and vacancy rates. But in the early days of the COVID-19 pandemic, there was no choice but to go on a crash course in previously unfamiliar epidemiological concepts like positivity rates, R-naught¹ and vaccine effectiveness, as these suddenly became drivers of short-term real estate conditions. Over the past year, real estate researchers have likewise had to quickly scale a learning curve in understanding energy markets. For the first time ever, we produced charts denominated in once esoteric units of measurement like therms, MMBTUs and MWhs. Gas, electricity and oil prices have long been linked to real estate outcomes—energy crises sparked 1970s inflation and have shaped real estate demand from Alberta to Texas and Scotland. But when supply is predictable and prices moderate, as in the years before the pandemic, those links can become dormant. They have awoken again in the past year. The recent dramatic but uneven volatility in energy prices has deeply influenced the economic and property market outlook—especially in Europe—and we expect it to continue to do so going forward. Contributors: Brian Klinksiek Global Head of Research and Strategy Petra Blazkova Europe Head of Core and Core-plus Research and Strategy Hina Yamada Research Analyst European Research and Strategy