Famous hockey player, Wayne Gretzky often quoted….”Skate to where the puck is going to be, not where it has been.”, which was originally coined by his father Walter (not many of us know that). To put it simply, he meant, focus on the future. This is especially true for commercial real estate investments as we always have to make future assumptions and projections in our acquisition deal analysis. Try to know the unknown!! With that said, no one has a crystal ball to predict the future, but you could identify macro trends that influence your investment outlook, strategy, and decisions.
In our opinion, and that of other large fund managers, the below 3 Ds are going to influence a majority if not all commercial real estate investment decisions globally in the next 10-15 years. As a bonus we added the 4th D, where we think rewarding investment opportunities will come your way within the next 12-24 months. That being said, a life changing global event like the COVID pandemic, could alter its pace to some extent.
Decarbonization
Removal or reduction of carbon dioxide (CO2) output into the atmosphere is decarbonization. It is achieved by switching to usage of low carbon energy sources. Decarbonization has become a global imperative and a priority for governments, companies, and society at large, because it plays a very important role in limiting global warming. When we talk about decarbonization the word that gets thrown around a lot in the investing world is ESG. To put it simply, E stands for environment, S for social, and G for governance or what we like to call “Impact Investing”. In the capital markets, now more and more investors evaluate companies based on their ESG or Impact data. In real estate, decarbonization efforts could be as small as changing light bulbs to LED or installing low-flow faucets to getting your building LEED (Leadership in Energy and Environmental Design) certified or investing in existing and new alternative energy infrastructure.
Whatever it may be, this trend is only going to grow in the coming years, so consciously evaluating your company or real estate’s impact on the environment will not only benefit the environment, but also you
Deglobalization
Deglobalization is the process of diminishing interdependence and integration between certain units around the world, typically nation-states. It is widely used to describe the periods of history when economic trade and investment between countries decline. In recent history, events like the COVID pandemic, Russia-Ukraine conflict adversely affected global supply chains, which led to countries withdrawing from the decade’s old globalization trend. Due to this we now see an increased focus on domestic and local production, which in-turn helps increase employment opportunities for the local workforce.
This trend also reduces dependence on other economies and countries, plus also helps with decarbonization by reducing long distance transportation. Shorter supply chains help lower carbon emissions, thus
reducing the negative impact on our environment. On the flip side this trend could lead to geopolitical tensions and instability. Also, these protectionist policies could lead to limited competition, giving way to rising inflation. For example, moving manufacturing from China where labor and other costs are considerably low, to North America or Europe would increase the cost of goods, leading to higher costs to local consumers. Whether we like it or not, this trend is here to stay for a while, and we need to build our businesses and real estate portfolios around it.
Digitalization
To put it simply, digitization is the process of converting information into a digital format. The use of digital technologies to transform a business model and provide new revenue and value-producing
opportunities is digitalization. This is by far the most quickly and widely accepted trend globally. In today’s competitive landscape, digitalization enables organizations to adapt to rapidly changing market conditions, meet customer expectations, and optimize their processes for greater efficiency and productivity. Technologies like mobile devices, cloud, SaaS, and the latest & most transformative of them all, AI have become essential for businesses to stay relevant and thrive. For example, when we started our company back in 2021, we made a conscious decision to go paperless from day 1 and invested in technology to enhance investor and vendor experience.
The 4th D
- Data Centers
- Distribution & Warehousing
- Distressed Retail Centers, Mixed-Use, Suburban Office
- Designated Affordable Housing
