What may shape real estate - Part II

The arti­cle rep­re­sents sub­jec­tive opin­ions of Hines Inter­ests Lim­it­ed Part­ner­ship (“Hines”)¹, the spon­sor of invest­ment vehi­cles offered by Hines Pri­vate Wealth Solu­tions LLC (“Hines Pri­vate Wealth Solu­tions”). Oth­er mar­ket par­tic­i­pants may rea­son­ably have dif­fer­ing opinions. 

After near­ly two years, glob­al economies seem to have digest­ed the abrupt shift from ​“no rates” to high rates rel­a­tive­ly well. Hines believes sev­er­al forces will be reshap­ing the real estate invest­ment land­scape in the decades to come. One of these (delever­ag­ing) was cov­ered in part one of ​“What May Shape Real Estate”. Anoth­er force that may have a pro­found impact is deglobalization. 

Re-industrialization may create opportunity 

Abrupt mar­ket change has his­tor­i­cal­ly pro­vid­ed oppor­tu­ni­ties for investors. With deglob­al­iza­tion, the chal­lenge is like­ly to be imag­in­ing how the redi­rec­tion of invest­ment flows due to re-indus­tri­al­iza­tion will affect real estate worldwide. 

It’s one thing to see the head­lines doc­u­ment­ing the slow­ing of glob­al­iza­tion, but quite anoth­er to con­sid­er what the re-indus­tri­al­iza­tion of the West real­ly means. Geopol­i­tics seemed to be dri­ving this change in invest­ment des­ti­na­tions in 2023. For­eign direct invest­ment flows are diverg­ing across regions, with Asia los­ing mar­ket share in terms of num­ber of invest­ments while Europe and North Amer­i­ca are gain­ing.² These cur­rents of change have swayed gov­ern­ments, CEOs, and investors toward resilience rather than effi­cien­cy, lead­ing to a stronger pref­er­ence for reshoring.

Global trade is expected to improve in 2024 

Glob­al trade con­di­tions are expect­ed to grad­u­al­ly improve in 2024, aid­ed by a reduc­tion in high­er inven­to­ry lev­els and a rebound in glob­al elec­tron­ics.³ Accord­ing to the Econ­o­mist Intel­li­gence Unit (EIU), world­wide trade is expect­ed to rebound mean­ing­ful­ly in 2024 if China’s eco­nom­ic recov­ery gath­ers pace fol­low­ing pol­i­cy stim­u­lus mea­sures, and eco­nom­ic growth in the Euro­pean Union picks up momen­tum. Even with sup­ply chain diver­si­fi­ca­tion, major mar­kets may strug­gle to replace Chi­na as the world’s man­u­fac­tur­ing hub. Although it is not known how long these changes will take, the improve­ment in glob­al trade expect­ed to occur in 2024 could lead to evolv­ing sup­ply chains and dynam­ic demand for not only ware­house facil­i­ties but also emerg­ing growth sectors. 

Hines is con­sid­er­ing where the new sup­ply chains will like­ly be, how new labor may be engaged, and what new imbal­ances and oppor­tu­ni­ties this may cre­ate. More fun­da­men­tal­ly, how much will all this like­ly cost and how may it impact the cost of goods along with broad­er inflation? 

And final­ly, what may the impacts to real estate be? One indus­try impact could come from the emerg­ing ​‘Bat­tery Belts’ of the world that are being dra­mat­i­cal­ly altered by mas­sive invest­ment. The list of fol­low-on impacts could expand across sec­tors and indus­tries involv­ing new logis­ti­cal require­ments due to evolv­ing sup­ply chains and data cen­ters– even span­ning into hous­ing needs. 

Hines is in active dis­cus­sions on how to cap­i­tal­ize on this trend that it believes will impact real estate.