Inflation is here.

In recent years, advanced economies have enjoyed a sustained period of stable inflation with base rates at record lows. We may soon come to miss the years of not reaching 2% annual inflation. Markets are pricing in rising inflation following with the US recording 6.8% in December 2021. In the real estate sector, mortgage rates in the UK and the EU have already ticked up. For the wider economy, as prices rise, the cost of transitioning to a cleaner sustainable future will rise as well. It will be important to monitor the appetite to pay for the necessary and now more expensive solutions our planet needs or whether we will see widespread societal pushback à la les gilets jaunes (the yellow vests).

Footing the COVID bill.

Fighting COVID-19 has required unprecedented efforts leading global government debt to increase by over $19.5 trillion; a debt that will have to be serviced. With inflation ticking up, emerging markets will be routed as global investors look for safe-haven markets including the US. In developed economies, governments will look to service the debt through a combination of taxes and the reduction of public services. Meanwhile, diverging vaccine rollouts risks 2022 resulting in a world where COVID-19 is a ‘disease in the developing world’ versus an economic risk for rich economies. However, as we have come to learn about pandemics, it is not over for anyone until it is over for everyone.

Next-Generation technologies.

In 2022, we believe one technology will make a big leap for three reasons: Distributed Ledger Technologies (DLT). First, in a world of rising inflation, High Net Worth investors have been turning to alternative investments with 45% of family offices considering adding cryptocurrencies to their portfolios. Second, the NFT craze of 2021 which resulted in to trading $10.7bn USD have led investors and lenders alike to question how it can apply to traditional investments like real estate with some looking to ‘tokenise’ properties. Third, these trends mirror existing initiatives in the Sustainability and International Development spheres targeting the unbanked and those without property titles to bring them into the modern economy.

The future of work.

The people have spoken, they want hybrid working patterns. Supporting this transition poses both risks and rewards. Prospective homeowners will continue moving to the suburbs and out of urban cores with more space for home offices pushing up prices in smaller markets. Commercial property owners will find that unless their buildings are Grade A, they will sit empty which is bad news for investors as many commercial properties are owned by institutional investors. For developers, this presents two opportunities. First is developing more homes in communities 1-1.5 hours from urban cores. Second is converting commercial properties to mixed properties capitalising on urban initiatives such as the City of London’s proposal to add 1,500 homes.

Wrinkles in the supply chain.

The global supply chain crunch has impacted everyone from New York to New South Wales. In the real estate world, longer lead times and COVID related worker disruptions led to an upswing in building costs that are being passed on to consumers. The question on everyone’s mind will is be if prices will fall should supply chains return to normal operations – an unlikely prospect with the price of shipping contrainers rising over 600% in the last 2 years. In the wider economy, these disruptions could impact sustainability initiatives. One example is the ongoing semiconductor shortage, an integral component in many of the devices required to operate everything from smart thermostats to electric vehicles.