For some real estate managers and investors, the world is becoming a smaller, not bigger, place.
“Deglobalization is real,” said Jeffrey Perlman, head of Southeast Asia and Asia-Pacific real estate at Warburg Pincus, speaking during a keynote panel at the 2022 PERE Asia Summit last week. “What we’ve lived through over the last 40 years of everything becoming more and more integrated is potentially a relic of the past.”
Perlman believes deglobalization will lead to more geopolitical instability and consequently have a negative impact on the world overall. However, “in terms of logistics and high-tech industrial, we think it’s going to be very positive,” he said. As governments begin to reassess their national security interests and other priorities, more manufacturing – whether in semi-conductors, biotech, biopharma or other key products – will be done locally, he predicted.
“Given how long this pandemic has gone on and likely will continue in various forms for a while, companies want to maintain greater levels of local inventory in each of their respective countries,” Perlman noted.
He added: “Fundamentally, we are believers in the fact that we will see greater deglobalization. And that’s going to have an impact on things like onshoring and reshoring. And I think it’s going to require a lot of space needs.”
Indeed, the impact of onshoring and reshoring can already be seen in logistics demand, said Greg Lui, senior vice president of investments at Singapore-based manager Mapletree Investments. Speaking during the logistics forum on the first day of the conference, he noted that although e-commerce-related demand has moderated during the past year, overall demand for logistics space is still on the rise. This is because demand in the sector is coming from a broad mix of tenants, which include not only e-commerce firms, but also logistics services providers, retailers, as well as companies which have been refining and reconfiguring their supply chains.
In Europe, for example, the focus of industrial real estate occupiers several years ago would have been on how to reduce supply chain costs, Lui pointed out. “Today, it’s very much, how do I ensure the resilience of supply chains?”
Moreover, he expects nearshoring and onshoring to be a long-term trend. “The return of manufacturing from offshore locations back into the US, back into Europe, both of these trends ensure the supply chain resilience,” he said. “Nearshoring is something which will continue, it’s not something which is going to end today. It’s something which is going to take shape and stay true in the next 3 to 5 years.”
Michael Hyun, chief investment officer at Dallas-based manager Crow Holdings Capital, agreed that nearshoring is not going away anytime soon. “We think that the market will continue to foster more repatriation of supply chains,” he said. “Companies are switching to more of a just-in-case versus a just-in-time supply chain, where they want more resiliency, they want to store more inventory, they want to have more US-based operations. That obviously all makes for a constructive industrial environment for the long term.”