LaSalle’s Investment Strategy Annual
The macro themes in the 2022 edition of LaSalle’s Investment Strategy Annual, provide a road map for navigating real estate markets around the world in the years ahead. We focus on five major trends, summarized below. 1. The Endemic Economy In 2022-24, we foresee an economy that continues to recover and generally acts as a tailwind for real estate recovery. The exact timing of the transition from “pandemic” to “endemic” is not known, especially with two new virulent strains (Delta and Omicron) still spreading fast. We are surely getting closer to endemic as vaccination rollouts continue to get traction around the world. This virus does not respect national borders, income, or wealth. In its wake, countries must rebuild economic productivity, relink supply chains, realign social patterns, and recharge spending power. But we are optimistic that this rebuilding will happen. Humanity has learned to live with several endemic diseases before—real estate investors will also. 2. A Higher Standard More is asked of real estate in several different directions all at once. Sustainability (ESG) criteria and rising tenant expectations are among the “asks” that investors must respond to. This raises the bar for putting societal and environmental goals alongside traditional financial targets when investing in real estate. Strong financial performance in 2021 also leads investors to expect “more of the same”. Yet, rising values might make this challenging, unless leverage or other types of carefully considered risk-taking rise too. 3. Rising liquidity and inflation Real estate has shifted from capital-starved to capital-rich several times already in this century. In the last three years, deal flow swung from abundant (2019), to scarcity (2020) and back to abundance (2021). The most recent supply of capital has more than kept pace with the rebound in deal flow. This creates challenges for the deployment of fresh money, even as it boosts the performance of assets already in a portfolio. Rising inflation also raises new issues—favoring some property types more than others. 4. Climate Change The attention given to climate risk is accelerating around the world as more evidence of climate change becomes visible. The impacts of more volatile weather patterns and rising temperatures appear more frequently in the news. The United Nations Climate Change Conference (COP26) in Glasgow in early November was covered extensively by the media. Through shifting public opinion, the political process in many countries is paying closer attention to climate change. Nearly 80% of the world’s GDP is produced in countries that have pledged to reduce greenhouse gas (GHG) emissions. The cumulative costs associated with wildfires, flooding, droughts, and high winds continue to rise. In sum, investor will need to factor climate risk analysis into their strategies and execution in the years ahead. 5. Long Run Demand Drivers We review how four secular demand drivers-- demographics, technology, urbanization, and environmental factors -- will continue to shape real estate markets in the years ahead. The progression and shape of these forces change as societies get older and react to each of the global themes. These changes are explored in a series of ISA 2022 “Insight Reports” linked in the text. Many recommendations flow from these various trends. We hope you enjoy reading the entire ISA 2022 report to find them. Jacques Gordon Global Strategist