While real assets are seen as a ‘safe haven' by many global investors, trade wars and financial instability are creating uncertainty.
An international slowdown would have an impact on real estate occupational demand, although there is also an argument that infrastructure spending could increase as one of the few ways to stimulate economies, with few other tools left in governments'/states' armouries.
According to the OECD, advanced economies will spend just 1.77% of their combined gross domestic product on debt interest in 2019 - the lowest since 1975 and down from a peak of 3.9% in the mid-1990s. This comes despite the large debt accumulated by many countries since the financial crisis, which has risen from 45% in 2001 to 76% this year, according to the IMF.
There is still leeway for spending on infrastructure, digital connectivity and environmental improvement.
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The prospect of ‘increasing populism/political extremism' in Europe continues to cast a shadow over real asset investment (insurance: 39%; pension funds: 43%).
While respondents are primarily concerned about volatility and unpredictability, there is also a fear that political risk could lead to nationalisation or disruption in a world which bases its appeal on reliable income streams.
‘Financial instability', however, is perceived to be the most likely and concerning possibility (insurance: 49%; pension funds: 45%). Four in ten insurers (43%) and pension funds (40%) fear ‘regulatory interference', which again could be seen as a rise of interventionism by populist governments.
However, global change can also mean opportunity, particularly in an era of knowledge capitalism, according to Aviva Investors' Director of Research, Real Assets, Chris Urwin.
In a study, ‘Talent, clusters and scale' published in June 2019, Urwin highlights how cities are evolving, with new characteristics defining success on top of the traditional benefits of geographical location and access to suppliers and consumers.
As global challenges grow, investors are increasingly likely to combat them by focusing on infrastructure and real estate in fast-growing locations which can support the growth of knowledge capitalism.
You can download the full report Real Asset Study 2019, In search of resilience in an uncertain world, in PDF format here.
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