59: Top 10 Trends for 2021 With Nick Axford

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Welcome. This is Real Estate Investing Live from New York with James Nelson, the principal and head of Avis and Young's Tri State Investment Sales Group. In this program, you'll learn about the world of commercial real estate and find out why it is one of the largest investment opportunities in New York and around the world. Now here is your host, James Nelson.

Welcome everyone to show number 59 of real estate Investing Live from New York. And wow, what an incredible year it has been. Certainly a challenging one, but we've all worked so hard to keep things moving. And hearing some of these incredible stories throughout the year on perseverance and what it takes to succeed in any market. And wanted to take a step back today. And I know a lot of us think about our specific space, whatever city you're investing in, asset class. And sometimes it is very important to take a step back and look at the macro picture. And so with us once again is Dr. Nick Axford, who is Avis and Young's global Head of research. Nick has over 25 years of experience leading the private sector research and consultancy. And from 1994 to 2018 he worked for CBRE, including five years as global Head of research. So we, we are very lucky to have him at Avis and Young and with us today. So we're going to get to that interview momentarily. But before we do, I just want to give a big thanks especially to some of you who listen to this podcast on Spotify. Spotify has just introduced the function where you can see what are the most listened to shows. And thank you, Jeremiah from Canada telling me that Real Estate Investing Live from New York is your number one played show. And Eric from New York, appreciate you letting me know that we're the number two podcast and second only to Joe Rogan. So I think Joe Rogan has something like 11 million followers on Instagram. So if we had to be second to someone, I think Joe Rogan, I'll take it. But in all seriousness, do what thank you all. Continuing to add your comments, subscribe, tell your friends on iTunes, Spotify, iHeartRadio, wherever you're getting this and if you haven't already, make sure and connect with me on social media channels. You can find me at James Nelson, nyc. So we're going to take a brief word from our sponsor and we'll get right back to our conversation about the top 10 trends for 2021, which you need to know.

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For today's show, I am thrilled to have back with us Nick Axford, who's Avison's Young's principal and global Director of research. And we are going to be talking today about the top 1010 trends for 2021. This is part of the Avis and Young Forecast series. Nick, thank you so much for joining us again.

Pleasure. Great to be back with you, James.

Wonderful. I know we were just saying it seems on one hand only like days ago that we did this for last year and yet it seems that we live in an entirely different world today. So looking forward to some ways ever.

Yeah, in some ways it feels like 100 years ago, doesn't it? Yes.

But yeah, this was a really intriguing report for me and I think for our audience to hear because it does address a lot of the trends that you had covered in last year's report, but in many cases it has accelerated many of these. And the top trend, and I don't know if you rank these David Letterman style or by importance, but at the top of the list, number one is DE globalization 2.0. And this was a 2020 trend, but it was accelerated by COVID 19 pandemic. So can you talk a little bit about this and what's driving it?

Yeah, thanks. No, that's absolutely right. No, they're not ranked in any particular order. We're just trying to help take people through our thought processes in what feels like a logical order up front. Yeah, we've got de globalization 2.0 as you say. We highlighted this last year because one of the common threads that we're really seeing across a lot of aspects of the pandemic is that it's not so much having new effects, it's actually accentuating things that were already happening. And as we commented last year, we were already seeing globalization slowing and in some important areas starting to reverse. And that's really been accentuated in a Lot of ways we've obviously seen a curtailment of global travel for business and other reasons. One of the biggest impacts we've seen is people looking at their supply chains. A lot of those supply chains are centered around parts of China that were severely impacted by the pandemic. And organizations are now looking to de risk their supply chains, so called shift from just in time to just in case, really looking at where are the risk points in the supply chain. And in many cases that means they're looking for alternative or additional suppliers closer to home. So we're seeing a simplification of supply chains and a sort of regionalization or a localization which may add a little bit of cost short term, but is seen as being longer term, more secure. So coupled with the other drivers that we commented on last year, we're seeing that giving quite a boost to both logistics and in some cases aspects of manufacturing activity in places where previously you might have regarded that as being something in decline. So big real estate impacts, no question.

You talk in the report about economic nationalism and you point out US and China. Those are usually the countries that you think of first through that lens. But talk a little bit more about what that means globally.

Well, I think the result of the US election is perhaps less significant in this area than in some others. It's an area where Trump and Biden might have different in some, different in terms of style. But from a substance point of view, I think that there's not a huge amount to choose between them. I think we are going to see still some ongoing trade tensions between the US and China. @ the same time, shouldn't ignore the fact that China is both an important marketplace and a key part of the global supply chains that still very much influence how the global economy works. I think that we'll see perhaps a calming of some of the tensions, but as we're trying to argue, in fact, I think the more important thing is some of the underlying trends going on from an economic point of view, which is are probably going to be driving some of these supply chain shifts for a while. Yeah, perfect.

And lastly on this point, you say in the report that even when the travel bans are lifted that we won't see a return to normal in the way of foreign travel. Can you expand on that?

Yeah, I think one of the big revolutions that I think we've all experienced is a shift from towards using video conferencing. Last year you and I were sitting in a studio opposite each other. This year, if we were having to do this on the phone, I don't think it'd be the same, but we're sitting here on zoom, we can see each other. It's not ideal, but we'd rather do it this way than either not do it at all or have to wait until the next time that I could make it over to New York. And I think a lot of businesses are going to be looking at a resumption of business travel for the types of activities that really require face to face interaction where being in the same room really counts, but for a lot of other stuff. You know what, we get used to video conferencing because we're going to be doing a lot more of it and it's going to replace quite a lot of the jet lag and the long haul flights that many of us were doing before and perhaps quite a lot of the shorter haul ones across the US as well.

No question. But for the record, Nick, I miss not seeing you in person. No substitute for that.

Yeah, you still get to buy me dinner. Don't worry. Good.

All right, so on to trend number two, no place like home. So talk about reports about the increase in productivity with work from home. Can this actually be true? I know McKinsey did a study on this. So what does this all tell us about the future of the workplace?

Yeah, I think what surprised us is not the fact that so many people have been able to survive working from home. It's that many people report that they've actually thrived. Various combinations of factors contributing to that. But not having to commute into the middle of big cities saves people a lot of time and aggravation. And actually, when you look at it, depending on what your home circumstances are, if you can find a quiet place, if you've got the right setup, and if your company's set you up properly from an IT point of view, actually you can do a lot of the things that are part of your job from the comfort of your own home. As Sheila Botting, one of our key leaders in our professional services and consulting practices, loves to say, work is what you do, not where you are. And for a lot of people, I think being in the comfort of their own home. Not everybody, but being in the comfort of their own home, if what you're doing is processing material, getting through your email, making a few calls, you know, well, you're probably just as productive, if not more so when you're sitting at home, particularly if you're not being disrupted if your home circumstances allow. But that said, I think in the early stages, everybody was focused on kind of keeping the wheels turning, keeping the machine turning, and slightly in maintenance mode. I think as we now start to move through later stages, you know, some of the cracks are beginning to show. People do feel more isolated. There's a lot of research done into homeworking, and it can impact people's career progression. It's fine for those of us who are perhaps more advanced in our careers and well experienced, but if you're young and starting out, if you're one of the new graduate intake coming in in September, October, into a new job, I'm not sure working from home is the easiest place to start. And that reflects the fact that actually being together for lots of different aspects of work, being together is a really important part of it. So I think what we're learning is that homeworking can have a place. I certainly think that people are going to want to work more flexibly moving forward. That includes partly homeworking, but there's a lot more to it than that. But at the same time, there are lots of benefits in getting people together as well. And arguments that this is the end of the office and everybody's going to work from home from now on, I think are a long way from the mark, no doubt.

And I just want to read from the report because I love how you put this. Employees whose needs are fully satisfied will be more engaged in their work. Humans crave a sense of belonging, which come from interaction and collaboration. Well said. Number three, workplace experience, and that's E Capital X experience. US office occupancy. I'll give you the backdrop for this, and then you can fill us in on the rest of the world. But in the US office occupancy right now is only at 27%. This was according to a Wall Street Journal article. Castle Security tracks this, and it's as low as 13.4% in San Francisco and only at 15.9% in New York. It would seem that people will only come into the office if there's a good reason to do so. Would you agree?

Yes, actually.

All right, on to trend number four.

On trend number four. I think that's right. I mean, if you think about what used to happen, I know you're sitting there with your first cup of coffee in your hand. And historically, the way in which we work is get up, grab a coffee, shove your suit on, get on the train, get into the office, then kind of work out what you're going to do, because that's kind of the default way of living. Now, I do go into the office. But it's a conscious decision, and it's because I specifically want to achieve something with some people, or meet some people, or do something. And the office environment is no longer the place where I kind of metaphorically walk in and switch on. It's a place where I go for that particular activity just the same as any other kind of environment outside your home. So what that means is that people are going to be rethinking what the function of the office is, because many people, if they've got a day of admin or a day of email or a day of calls, why spend that hour and a half, two hours, whatever it is, getting into the office, and then just sit at a desk when you could do that just as well from lots of other places, either a desk closer to home or home itself. So what that means is we need to rethink what the function of the office is. It's not a factory for phone call making. It's a place where people go to interact and to meet and to brainstorm and to do different things and to meet with other specialists and collaborate. So that means there's going to be a real acceleration of shifts that are already underway in many organizations around the world of creating offices that are specifically designed to facilitate those activities. And there'll be a place for you to go and sit for an hour to do your email, because everybody needs to do that at some point. But the purpose of the office is to promote interaction and engagement, and that's the way they're going to be designed.

I have to say that as a broker, it's therapeutic for me to hear the phone calls. And so when you're talking about the end of the phone factory, or however you put it, you brought a couple tears to my eyes. But you did say that this X factor workplace is a lot more than technology rich meeting spaces. And you even said that we should be borrowing from hoteliers. So is this more of a hotel type experience? Concierge, what did you have in mind?

Yeah, I mean, the title again goes from work that our colleagues are doing, talking about the X factor workplace, which is in order to encourage employees into the office, that office needs to create an X factor. It needs to have an X factor. It needs to create a sense of experience. It needs to contribute to your ability to do your job. And the key point is this isn't one size fits all from my point of view. I spend my life thinking, doing consulting. I want to interact with people, but I also want a lot of downtime to sit and Think quietly and write and read, you're a different animal. And if the right environment for you and your team is sitting around g each other up, spreading passing information, chatting and behaving as a team and acting as a team, your preferred environment is going to be different to mine. So this is the whole point, is that we need to create office environments that do cater for the needs of the people who are using them. And it needs to add to your experience. It needs to be a positive contributor rather than just a sort of neutral backdrop which happens to be the place that you are. Because the amount of people are paying for office rents in London or New York, it's got to do a lot more than just be a sort of passive place where I can sit. There's loads of those. It needs to actually help drive the bottom line. And there are lots of ways in which it can do that. And you know, that sense of when you're arriving in an office environment, you know, you don't just walk in and sit down at the same place. When you arrive in a hotel, first thing that happens, someone says, we've got a restaurant, we've got a bar, we've got a pool, we've got a gym. Here's how you use it, you know, here's the technology, here's the app, here's your login to the WI fi, you know, that kind of mentality that the people who arrive, even our own employees arriving in an office, you know, treat them like guests at a hotel, explain to them how to get the most out of this environment that they've provided.

So, net net, if you're seeing a shift away from the traditional office, does this mean less demand for office space as we need it? What happens with the office vacancy rates?

Yeah, I mean, that's the key question and obviously a difficult one to answer. And again, there's no single answer to that. On the one hand, I think short term, and bear in mind that we're in a quasi recession at the moment, demand tends to fall away. Companies are really looking at the bottom line. Anybody with surplus space is probably going to look to try and offload it, at least temporarily. Number of people growing rapidly and expanding at the moment is not that many. We would expect the market to see a rise in vacancy and some sort of slight softening of rents short term. I think the point is this process is going to encourage companies to go for better quality, higher quality space in really good locations. They might need slightly less of it in those locations. So they'll be concentrating, but There'll be other people prepared to come in and pick up that really good, better quality space because they need some of it as well. Areas that might suffer are more secondary peripheral locations, secondary peripheral buildings. But as we can come on and talk about, in some areas, there's going to be a redistribution of where all this activity takes place. So it's not just going to be all about prime locations in the middle of big cities. It's going to be better quality space in key locations. And so redistribution of activity is, we think, going to be one of the.

Themes that makes a lot of sense. Okay, so number four, portfolio metamorphosis. So I'm envisioning this cocoon and a beautiful butterfly emerging. I'm not sure if that was the illustration that you were thinking when you came up with this term, but explain. You talk about how a flexible portfolio is a matter of necessity today rather than a choice.

Yeah, I think this links very much to the point I was just making that we may see a bit of a reduction in the footprint of a lot of organizations in those sort of Great big monolithic HQs in the middle of big cities. But if we think about what we as employees enjoy, I'm going to want to get back to the office. You're in the office, but we're maybe not going to want to do it five days a week, nine to five. And there'll be plenty of more flexible ways of working. And presenting this as a sort of binary choice between either come into the office or, or stay at home is ignoring the way in which the market's changing. If you recall, when we think back to last year, one of the big topics we're talking about is flex working and the flex sector. There are now loads and loads of different options out there, ranging from that traditional longer lease HQ, but through shorter lease space, short flexible leases that you manage yourself, the co working and serviced office type operations. So you can pretty much pick, you know, the length of tenure and the type of tenure that you're looking for. And so organizations are going to say, okay, well I'm going to reduce my footprint a bit in terms of that big retained owned space in the middle of a big city. But I'm going to have a couple of touchdown points or I'm going to do a deal with a flex provider that allows my people to use their network of offices to go in when they need to get out of the house, or they want to go somewhere to focus, but they don't necessarily want to come into one of our offices. So portfolios are going to adjust and become much more dynamic, much more flexible. One of the advantages of these flex operations and flex options is that it's much easier to experiment because you don't have to do a deal that's going to stick you in for three or five years. You can do deals and say, okay, well, we'll try it for a few months and see how it works. One of the really interesting things, James, is that when we've been talking to some big cutting edge organizations about the way they're thinking, they've been really desperate to try and change a lot of their models. The way they work, the way the portfolio works, the thing that stopped them is not the property market and it's not their ability financially to make this work, it's the change management. It's that they can't see a way to bring the organization with them to these kind of new working practices. And they describe this pandemic as a control delete moment. They see this as having just kind of put everything on hold for nine months now, a load of those really radical options that before just weren't on the table for practical purposes. Now actually some of this stuff feels like a really innovative and nice way to start getting back to normal. Compare it to what we were doing 12 months ago, it's unbelievable. Compared to what we're all doing right now, it feels entirely logical and we're going to see a lot of change quite quickly.

Yes, this could truly be looking back, a reset where companies build stronger for the future. So looking for the positive in all this, now you do refer to this long tail concept. Can you talk a little bit about what that means?

Yeah, I mean, historically people tend to associate efficiency with sort of concentration. And so a lot of the work that we've been doing with large occupiers on the office side has been about sort of, you know, creating hub type locations that people tend to congregate around. You know, the range of flex operations out there now means that actually organizations can try and find ways to operate portfolios that have got a lot more smaller components dotted around. Because you can do that in ways that don't necessarily mean you have to take on yourselves a huge management overhead in order to run and organize that entire great big portfolio. There are plenty of other organizations out there that will do that for you and you can buy it on a sort of plug and play basis almost literally, as we said to giving employees a card and saying, here's the list of places you can pop into. We're paying by the hour. So, you know, lots more options that give organizations much more flexibility.

Well said. Okay, number five, managing expectations. COVID 19 is reshaping landlord tenant relationships. These have been far reaching implications for managing agents. So maybe you could expand on that. I love how politely the Brits always put things. Landlord tenant relationships, yes, they've been reshaped. So yes, imagine a lot of pleasant conversations going on right now. But the managing agents are usually right in the middle of this. So how are they helping find a common ground here?

Yeah, I think that that's kind of the point that the conventional view of landlord in the red corner and in the blue corner we have the occupier and ding, ding, off we go. That's changing, I think for good landlords. That's actually in the distant past anyway, but I think it's probably still somewhat true. But it's been changing. And the point that a lot of our real estate management colleagues have made is that suddenly the conversations that they've been having with occupiers have been existential. Quite literally, we are in some cases talking about the life and death of organizations as to whether or not they can afford to pay rent. And we're actually literally talking about life and death in terms of the health and well being of the employees who work in this building, in these buildings. So this isn't people arguing about how clean the elevator is and whether the carpet got hoovered. This is real stuff. And the property managers have really engaged on a personal level with the representatives of the occupiers. They report building relationships, they report the benefit that they get where they've had that relationship running into this crisis that paid huge dividends in terms of the ability to work together, to manage through. If we think sort of looking forward about what we were saying about that workplace experience, actually now the interests of the occupier and the landlord are much more aligned than you might think. We think that this crisis is really kind of for the office sector. It's the equivalent of online retail for the shopping center sector. Because what happened there is you've got shopping center owners and retailers faced with the same problem. In the shopping center sector. For years it's been recognized that actually they're on the same side. They need to work together to create an environment that gets people into the shopping center and then gets those people shopping in the shops. So the retailer and the landlord are absolutely on the same page. Think about that in the office sector now, companies want their employees in the office so they can interact and engage landlords want office occupiers who are getting people in the buildings. And so both groups are really thinking about what's the role of the office, how do we integrate the technology, how do we run this facility? You mentioned the hotel concept. How do we create that experience which is not just about the physical environment, it's about the technological environment, the data, the welcome, the experience of coming into the ground floor, getting to your space and then being able to use it. And we're definitely going to see more collaboration and a greater alignment of interest between office occupiers and office landlords in the way that we have seen in other parts of the real estate market.

No question. I'm glad that you touched on that last point about the expansion of technology, certainly the making building systems more efficient and that we're going to certainly see an advancement as a result of this. Number six, hyperlocal. So there's been an unprecedented spike in online sales. And I think the report you referenced said that online sales have ticked up as much as a third since March due to the pandemic. And this has put a major massive pressure on the supply chain. So how is that being addressed?

Yes, it's had impacts all over the place. We've seen consumers who historically haven't wanted to shop online have either been forced to do so or at least have been encouraged to do so. And we've seen retailers who may have had only a limited offer available before have either gone online for the first time or expanded their activities. And of course, you know, those of us who for part or all of our activities have already been shopping online have, you know, massively increased the amount of it that we're doing. And that has had lots of implications. But a key one, as you say, is it's put real pressure on existing logistics networks. You know, not every operator is an Amazon, not everybody has these huge great warehouses and facilities that are geared up to delivering orders quickly and efficiently, but the drivers are the same. Nobody wants stuff more expensive and nobody wants stuff slower. That's an inevitable process. A lot of these organizations that are going online for the first time are having to find ways to try and respond. So there's lots of use of click and collect, there's lots of looking at different ways to fulfill online orders and that's having quite a lot of ripple through effects. Potentially what we're seeing is a rethinking of the role of the store because if you want to get stuff into people's hands quickly, you need to have a distribution network, rather than thinking about the great big central depot in the middle of the US with loads of lorries coming in and out. Actually the retail network itself is a pretty efficient part of, you know, it's close to where the majority of people are by definition. And so there's a real rethinking about how to handle that last mile, last hour delivery which involves, you know, retailers doing online order picking from the back of the store and then getting it delivered out, click and collect with people popping in to pick stuff that's been pick up stuff that's been collect, you know, put together for them. And also now lots of innovation in sort of robotic picking and micro fulfillment centers embedded in different bits of the city and potentially reusing some of the redundant retail space and units or even old department stores that are coming through. So lots of innovation in this space.

So just a quick note for our listeners in the US When Nick referred to a lorry, that's a truck. And when he said earlier in the show a Hoover, he was referring to a vacuum cleaner. I did spend six months in London in college, so I did pick up some of the local jargon. So yes, I'm sorry, I shouldn't call it jargon.

I also apologize for not having an accent, James.

So, and it's interesting that you brought up this, I don't want to call it micro fulfillment, but this need for this last mile. And certainly with Amazon's announcement that in the US certainly they're taking on these massive facilities, millions square feet and even more, but they also announced they're opening up these 1500 distribution hubs to help accommodate that and expedite it. And I was also speaking to Amy Erickson, Avison Young's head of investment management, and she's going to be on our show as well. And she was talking about how some Walmarts in Canada have actually closed down their retail stores to convert them to logistic facilities because of that great need. So found that really interesting.

Yep.

Okay, so moving right along, number seven, love thy neighbors. So could COVID 19 actually be the catalyst to reinvigorate our neighborhoods? You say that we need to take a holistic view of what makes a place successful. So please tell us what you mean by that.

Yeah, what we're saying is that if you look at the trends that we've been seeing, a lot of parts of our cities have been under real pressure. Employment has tended to migrate to out of town business parks or into the city centers, retail units. As we've just been discussing coming under Pressure from the Internet. The strong dominant malls and locations have survived everywhere else. Seeing lots of to let signs and bargain stores, but not a lot else. That poses huge challenges from a planning point of view. Areas that are physically in decline tend to also start suffering from other social problems and inequality, as we've seen through this year, perhaps like never before. Also a major issue that we need to be thinking about and one sort of concept that is gaining a lot of popularity in urban planning terms is the idea of the 15 minute neighborhood. The fact that actually, if you look at places that are successful, they tend to have a combination of residential space, commercial space, retail space, leisure space. If you think of the favorite neighborhood in the favorite part of your favorite city, you'll imagine all of that stuff going on at the same time, that sense of community and neighborhood. If you think about some of the trends we've been talking about, not everybody is now going to want to drive or commute into the middle of the city. They want a place where they can go and do some of their work nearer to home. Micro locations for logistics distribution or for retail distribution and click and collect. And during these periods of lockdown, a lot of people are spending more time in their local neighborhoods than they were previously when they were just shuttling backwards and forwards on a train or in a car. And so we're actually seeing a lot of initiatives supported by local government and driven by the private sector to actually help drive neighborhood and community initiatives to rebuild neighborhoods, rebuild communities. And there are real commercial opportunities in here that play to some of the trends that we're seeing that have been accentuated again by the COVID pandemic. And whilst it's not a solution for everywhere, we really do think that there are opportunities here. And we are seeing inquiries and levels of interest and transaction levels actually in both the retail and office sectors holding up better in some of the smaller towns and some of the suburban locations than in the big dominant locations. And that reflects the fact we're seeing, you know, we're seeing people thinking that maybe the pattern of activity is going to be slightly different in the new normal, so to speak, than it was in the old one.

So, Nick, I don't know if this is along the lines of what you were referring to in this point, but we, we've talked a lot in the past about urbanization. So Here in the US it's estimated that 83% of the population lives in cities. This is up from 64% in the 1950s. There's been estimates that by 2015 it could be as much as 89% of the US population could live in cities. And I'm sure that trend, you see that all around the world. But with this, certainly you see a lot of people moving out of cities, going to suburbs. There's a talk about is this going to be the reemergence of suburban office. So when you talk about this 15 minute city center, are you still talking about a major urban city or does this apply to the suburbs as well? How do you think about the shift from cities to the suburbs?

Yeah, I think we're using city in lots of different senses where we're talking here. And yes, we are going to continue to see a concentration in urban areas, whether they are big cities or towns, but we're going to see continued urbanization. But the point within many of our bigger cities is historically they tend to grow up as sort of individual communities and locations. Think of different boroughs in the parts of New York have very different characteristics. And that's actually one of the joys of many parts of New York is the distinct characteristics of these sorts of neighborhoods. But over time they tend to get eroded. You tend to see a homogenization. You tend to see the bigger, more dominant employment and retail and leisure opportunities migrating into central or hub locations to the detriment of those neighborhoods. What we're arguing is that actually those neighbourhoods are fabulous and they offer character and unique identity. That is actually what people are craving from a retail and a leisure experience. And that rather than seeing that continuing to decline, we think there are real opportunities to reinvigorate these different areas and neighborhoods. It's not going to happen everywhere and it's not going to happen overnight. But actually, we think people are going to rediscover the joy of these communities and areas. And there are commercial investment and operational opportunities that come along with that.

Wonderful. I really appreciate your clarifying that. So on to number eight, risky business. So Covid knocked climate change out of the headlines, but it still seems to be a great concern. How are companies now focused on this? Risk management and the. And maybe you could touch on what the impacts are for real estate.

Yeah, they're absolutely massive. I mean, Covid knocked pretty much everything off the headlines for much of this year. But think back a year ago, Greta Thunberg, and the protests and the movement that we saw around climate change really dominant. And in fact, very shortly after I sat down with you and was talking about this in the beginning of the year, where then we were talking about the role of government and New York City. Government front and center in this particular case. And then Larry Fink came out with his infamous letter to, or famous letter to shareholders highlighting how climate risk is an absolutely fundamental issue in thinking about the future performance of companies in investments. And the job of the capital markets is to look ahead at future investment performance and to price it. And therefore those organizations that are at risk in various ways from climate change are going to see themselves impacted very, very quickly. He talks about significant reallocation of capital and that it's going to happen far faster than the impact of climate change itself because the capital markets are looking for forward at that risk and pulling it back into pricing today. This is the thrust that we've been focused on, we're focused on this year, is that this is less about government and this is about the private sector. When Arifinka and BlackRock, who control $7 trillion of investment, the biggest fund managers in the world, if they're paying attention and they're saying this is now going to be the driving force in how we allocate our capital, that everybody sits up and pays attention. And we're seeing a lot of organizations getting involved in science based targets in the Task Force for Climate Related Financial Disclosures, which forces organization and helps organizations to be more transparent about what they're doing, to measure their performance in various areas very objectively and then to publicize those. And one of the key things is, and the UK government has announced that this sort of activity is going to be mandatory for all their large companies within the next few years. And in fact from next year, for many of them, as this starts to happen, one of the key things that organizations begin to focus on is their supply chain. It's no longer just about your own activities, it's about the activities of all the other companies that you do business with. So when the biggest dominant companies with the deepest pockets, the ones that we all want to be working for and with, when they start taking this seriously in their supply chain, the rest of us have to sit up and pay attention. That starts to have a very, very quick multiplier effect through the supply chain. Indirect emissions is one of the key areas that they look at. And of course, for all organizations, almost no matter what you do, real estate tends to be a very significant component of your carbon footprint and of your energy consumption. We can expect the impacts on real estate that we already recognized and were talking about last year. We can expect thinking around that and action around that to start to accelerate pretty dramatically, I think.

Perfect. And a little preview for our listeners. We will be having that conversation with Amy Erickson about ESG investing and what to look for there. And it is a massive, massive movement. So it's something that you have to take into account moving forward. Okay, we're almost getting to the end here. Number nine, building a recovery. So we've seen massive amounts of stimulus around the world. We're waiting for our next installment here in the US what are the opportunities for investors that will emerge from this? You said in your report that investors are now focusing on the new normal. So maybe you could speak a little bit about what you mean by that.

Yeah, I mean, I think certainly for those of us in real estate, some aspects of the new normal are not going to be that different from the old one, which is lower for longer, which we've now been talking about for 10 years. Interest rates look as though they're going to be nailed to the floor for at least another five years. Governments have all taken on unprecedented, is overused, but boy, extraordinarily unprecedented levels of debt, which means that they've got a vested interest in keeping interest rates low. And that means for real estate investors, real estate is still going to look very attractive. Core real estate is still going to, in relative terms, look very attractive. It's going to be very competitive. There are going to be more buyers than sellers. And we think that that is certainly going to support, but it's also going to make it very difficult to think about attractive levels of return coming out of that sector in anything other than a relative basis. One of the things that strikes us is the massive contrast with the financial crisis, where after that, when there was lots of debt around, the IMF and others were saying, what we need now is austerity. We need people to stop spending, start saving, rebuild balance sheets and generally behave in a more responsible manner as they saw it. And in many cases, I think that's now seen as in some ways something of a mistake. Certainly very different to the noises that are coming out now where the IMF is actively urging governments to go out and spend their way out of the problems we've got now to take advantage of low interest rates. Now is the time to borrow, to invest. And we are seeing politicians all around the world. The phrase build back better was used by Joe Biden, but that phrase has been around for nearly 20 years. And it's about thinking about, as we invest for the future, let's really try and do things in a way that put us in a good position looking forward. And so if governments are going to be investing rather Than just chucking money around and hoping that it makes people feel better and the economy recovers. It needs to be targeted. It needs to be targeted in two ways. Firstly, it needs to be targeted in leveraging private sector investment. Use some money to help the wider pool of private investment capital do the kind of things that you want. Secondly, it's going to be targeted at things that are needed for the future. And we can see very clearly various areas. Infrastructure tends to make people think of roads and bridges and there might be a bit of that. But think about other areas of infrastructure. This is what governments are going to be funding and targeting infrastructure to support electric vehicles. Maybe less of a discussion point in North America, massive across Europe at the moment, really, really accelerating. And it will hit the US Infrastructure for clean energy, wind turbines, solar power, digital infrastructure to support 5G so call centers and network technology that needs investing in. And also we're just coming through hopefully towards the end of a health crisis. We need investment in biotechnology, in life sciences. And what it's also taught us is we need investment in health care services, in health facilities. And through a lot of the protests that we saw earlier in the year, highlighting something we highlighted last year, inequality, social infrastructure, housing, education facilities, all of these things that government is going to be looking to put money in directly and use its fiscal policy tax breaks to encourage people to be investing in these areas. And with returns on core real estate looking pretty low, there are going to be plenty of opportunities out there that people will be looking at that offers similar sort of profile but perhaps some juiced up returns to invest into.

I hope you all were taking notes. Nick just gave you your investment thesis for next year so we really appreciate that. My 2 cents can be found on my December white paper on the ay tri state investment sales.com site that is entitled Buy New York City Now. And I just took a look at historical pricing pricing in New York. We have not seen this for 10 years and no doubt we've seen some cap rate expansion. Nick talked about some of these core opportunities. Meanwhile our 10 year treasury is over 200 basis points lower than it was 10 years ago. When you look at the opportunities today for the cash on cash returns available, they're certainly unprecedented. But on a macro level that gives us a lot to about think think on the different considerations. So with that I don't know if we get a drum roll. I guess we counted up. Maybe we should have been counting down but we could probably. Matt can still put in the drum roll but we are at number 10 which is measure for measure. So gross domestic product, or GDP is the sum of values of goods and services produced in the country over a given period of time. So not without reason, it has been called the most powerful statistical figure in history. So why would a Nobel Prize winning economist now be calling for it to be abolished?

Yeah, and this may seem quite a strange one, particularly for some real estate advisors who are kind of some way out on the end of the capitalist spectrum, you know, might think. But I think this, you know, if you listen to the way in which we talk about the world, the trends we highlighted last year, and this we at Young believe that, you know, organizations need to recognize that their purpose, that, you know, yes, we are about making money, but organizations that simply view themselves as existing to make money, we believe are unlikely to last very long. And we're not alone in that. There is actually a rich history of people who are very firmly anchored in making money, but who recognize that it's important to do that in a society, that recognize where we recognize obligations to wider society. And the discussion around GDP is that, you know, now if you talk to most major organizations, they recognize that, you know, the importance of climate change, the importance of equality and social welfare. You know, we routinely in business talk about esg, you know, the environmental, social and governance aspects of the business that we do, as well as profitability. And yet the metric that we use for measuring success at the city level, at the country level, invariably is just gdp. And that doesn't seem to really make sense because GDP talks about the amount of growth that's happening, but it says absolutely nothing about the quality of that growth and it says nothing about the cost of that growth to different elements of society or to the environment. There are actually metrics out there that allow us to think about success and progress in a more rounded way that actually reflects the way in which we're thinking the rest of the time. So for example, if you look at the World Economic Forum's Inclusive Development Index, it's a way of kind of measuring where we are and how much progress we've made. That includes gdp, it includes the level of employment and productivity and other quite sort of capitalist focused business metrics. But it also includes measures of inclusivity, of poverty, of levels of equality within society and levels of the carbon intensity of the economy, levels of savings that are being generated and so on. So it tries to measure our progress and our situation in a much more more rounded way. And we think that this has significant implications because if we were to start using an index like this to think about the success of New York or the success of the United States year on year. It's not just about GDP growth. It's about what progress are we making in all sorts of other areas. And if governments get to the point where they know that's what they're being judged on, it's not just the economy, stupid, it's all this other stuff as well, then governments start behaving a bit differently because they want to get reelected. That's what they're there for. And that means that they target tax dollars and they target incentives and they target policies in different areas. And that flows through all sorts of impacts of all the kind of things that we've been talking about, real estate, business and otherwise. And Joseph Stiglitz, who's the economist, you don't have to agree with everything that he says, but one of his, I think, telling comments is if we measure the wrong thing, we will do the wrong thing. And I think there's absolutely a lot of truth in that. And for us as, yeah, we're real estate advisors, but we see ourselves as existing to genuinely create real economic, social and environmental value. And we want to be working alongside clients who see that as being important. And so this bigger, wider debate about how we define success at the societal and community level, I think is an important one.

Wow. That is, you've given us a tremendous amount to think about, certainly on that last one, and just an incredible amount of work. So thank you to you and your team for pulling this together. So, Nick, does that mean you're taking off the rest of the year now and we won't see you until the 2020?

No. We're certainly going to be looking at a lot of these and out there talking about them. If you want to dig in in a bit more detail, there is a section of our website@avisonyoung.com where you can read. They're not huge reports, they're sort of small reports on each of these topics and lots of interesting references that you can follow up. And if you are interested in knowing more, please do get in touch with. We'd love to continue the conversation on any or all of these trends and what they might mean for your organization, with you, your colleagues and at your leisure.

Wonderful, wonderful. And for those of you on Instagram, definitely follow us at Avis and Young Global, where we also posted these top 10 trends and you can read through the report there as well. So, Nick, just one final question before we go and I could very easily give you the hall pass here and let you off the hook with this pandemic. But looking back at your 2020 key trends, if you had to grade yourself on how you did on these predictions, how did you think you fared? Or was just everything from 2020 thrown out the window?

I think it's fair to say that, no, I think that we score pretty highly because what we were trying to do was to identify some sort of the kind of underlying trends that we thought were important. And I think if you go back and look at them now, they're pretty familiar. The stuff that we were talking about has very much been the agenda that we've been focused on this year. I think it's fair to say that, you know, at a micro level, you know, we were never trying to make sort of point predictions for this year, so our job was a bit easier. And frankly, you know, we certainly didn't see the pandemic coming, which, you know, you can argue kind of somewhat limits the mark that you're going to give us. But I think at the same time, you know, we highlighted some important issues that I think have absolutely come to pass. We didn't see exactly how this year was going to pan out. But certainly, you know, the conversations that we were having this time last year around the trends with quite a few clients, we've all got together again during the course of the year and said, boy, in some areas we were more right than we possibly knew. So in some ways we got lucky. But hey, you know.

Well, I know this year that a lot of the universities and schools elected to go to a passport fail grading system as opposed to letter grade. So, Nick, I would definitely give you a pass. And even better, you know, I give you a high scoring mark. So thank you again, giving our listeners a tremendous amount to think about and really appreciate your joining us today.

No problem at all. Great fun as ever, James. Thanks very much. And you still owe me dinner. I'll be open to collect.

You can count on it. This is your host, James Nelson of Real Estate Investing Live from New York. Thank you for tuning in this week to Real Estate Investing Live from New York. Please join your host, James Nelson for another program next Tuesday at 7pm in New York, 4pm Pacific Time on the Voice America Business Channel. All shows are rebroadcast Wednesday mornings at 7:00am Eastern Time, 4:00pm Pacific Time, as well as always on demand. We'll talk again next time week.