During a crisis, it is natural to turn to hope – to hope that the crisis will be short-lived and normality will return soon. As is often the case, the crisis outlasts people’s hopes. The COVID-19 pandemic was not over in a few months, and the Russian invasion of Ukraine is ongoing. The uncertainty surrounding real estate and the wider world – from geopolitical tensions, political unpredictability, protectionism, technological disruption and physical climate risk – is here to stay, at least for the foreseeable future.
Waiting for ‘normality’ and a real estate market recovery shaped on past experiences will lead to disappointment and inaction. Therefore, hope eventually makes way for acceptance and pragmatism – dealing with the way the world is, not how you would like it to be.
This is the stage the institutional real estate community seems to find itself, according to the latest Emerging Trends in Real Estate Europe report from PwC and Urban Land Institute. Published at the beginning of November, the annual study concludes that the “overriding sentiment among leaders [has] shifted from last year’s cautious optimism to pragmatism”.
The biggest concerns among investors, according to the survey, relate to political instability, the escalation of global conflicts (such as Ukraine), housing affordability and economic growth. But concerns about deglobalisation have also risen rapidly up the ranks, more than doubling over the past two years from 31% in 2023 to 70% today.
One unnamed global real estate investor cited by the report said that, while direct action in the face of these risks is not entirely possible, the focus is on establishing “where we think the big trends like deglobalisation and demographics are going to play out and therefore try and lean against that”. Others also point out that deglobalisation could lead to new opportunities in response to trends such as nearshoring, friendshoring and ‘friendvesting’, according to the report. While geopolitical disruption is largely seen as impeding growth, a number of respondents believe Europe will benefit from ongoing volatility in the US.
These are precisely the points we explore in our special report on deglobalisation. What does deglobalisation mean for real assets investors and global strategies? What is Europe’s position in an emerging world order? Will increased defence spending and changes to supply chains lead to opportunities on the old continent?
Finding opportunities in a European remilitarisation – an unnerving thought in itself – certainly smacks of pragmatism. Whether it transpires to be a major investment theme for the latter half of this decade, time will tell. Certainly, the potential for German defence spending as a driver of economic growth and real estate development opportunities was a key topic of discussion at this year’s Expo Real trade fair in Munich.
And growth is what the real estate industry is desperately seeking. Our latest Top 150 Real Estate Investment Managers report shows that the aggregate assets under management of the investment management industry have fallen for the third year in a row, from €5.9trn to €5.7trn, after a decade of almost unbroken growth. This is in part driving the latest wave of consolidation as the industry adjusts to a brave new world.
Richard Lowe, Editor-in-chief
