What may shape real estate - Part II (NEW)
The article represents subjective opinions of Hines Interests Limited Partnership (“Hines”)1, the sponsor of investment vehicles offered by Hines Securities, Inc. (“Hines Securities”). 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.