Initially the improvement of the pandemic situation was supposed to have been supported by an improving labour market, accumulated savings, favourable financing conditions and the deployment of the Recovery and Resilience Facility (RRF). Unfortunately, the war has entailed disruptions on the global supply chain, causing commodity price pressures and an increasing uncertainty. It is obvious that the EU, among other advanced economies, has significantly suffered its impact, given its geographical proximity to Russia and Ukraine.
Within Iberia, Portugal’s economy grew by 4.9% in 2021, recovering slightly more than half of the level lost in 2020. The public deficit is set to ease down to 1.9% of the GDP in 2022 and to 1% in 2023, on the back of economic growth and the inflow of EU funds, which will bring a strong momentum in public investment.
In Spain the economic recovery is expected to continue despite the disruptions created by Russia’s war of aggression against Ukraine. Real GDP is set to expand by 4.0% in 2022 and 3.4% in 2023. Headline inflation is projected to peak by mid-2022 and average 6.3% in 2022. The labour market is expected to remain strong, with the unemployment rate at its lowest level since 2008. The general government balance is set to improve, aided by strong revenues.
So, with this macroeconomic picture, it is worth to think about trends in the Real Estate sector.
First, we can see there is a need to create smarter urban environments. Digitalization should impact many areas; building and land design and urban development should be supported by a data-centric approach to design.
Second, the “Environmental, Social, and Governance” (ESG) set of issues already present phenomenal challenges to meet their policies. It is not about issuing reports, it concerns all business strategy, emerging as a something fundamental for real estate companies. There will certainly be a response to meet growing expectations from investors but also from tenants and employees. Real Estate should be seen as an industry leader on addressing climate risk. As buildings are responsible for nearly 40% of annual global carbon dioxide emissions, Real Estate leaders can assess data on the environmental impacts of building operations and then, implement sustainable practices and materials. The Corporate Sustainability Reporting Directive (CSRD) will change the existing reporting requirements of the EU’s Non-Financial Reporting Directive (NFRD). It will be a mandatory issue for Real Estate companies to report. The proposed regulations will come into effect in 2023, and the fulfilment of CSRD’s requirements will demand material assessment and goals for a long-term ESG strategy.
Finally, it seems quite clear that Real Estate assets are strongly linked to how we live, work, and consume. In recent years the property assets segment has expanded into logistics, flexible space, retirement living and student accommodation. Alternative sectors will probably provide amounts of income different from those from traditional Real estate assets. Alternative assets maintained 4% share in 2021 and their performance in 2022 will show what we can expect from them.
To conclude, it seems clear that market players should keep an adequate balance between different asset classes.