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