Real estate, alternative real assets and other diversions

Gurus, Seers and Randomness

My World 2021

My world: June 2021…

This is part of a series of articles where our contributors describe how they think things will look a year from now.

I have a teaching aid I use with new graduate students. I show them a graph that shows performance of commercial real estate over time. Around it are lines representing the performance of individual investors. One stands above the national line and moves away from it sharply. I ask the students to tell me how this investor has outperformed. They provide a range of possibilities: superior market knowledge, being in the right sector or market, great stock selection, clever use of finance, access to capital, better forecasting tools. The investor as hero!

Next, I press F9. The graph recalculates, lines rearrange. In this alternative history, our previously superior investor falls below the market. Maybe a new hero appears. Each of the lines is simply national performance plus or minus a random amount. In the one history we know, someone outperforms. They become the guru, the market expert, they gain new clients, access to funds, people listen to their wisdom. But was it all chance, did they just get lucky? In real estates, some gurus don’t even have to get lucky: they are revered and find platforms despite their track record of running their funds repeatedly into financial distress.

So, we simply don’t know what the world will look like in June 2021, we can only guess. We know broad parameters, we construct scenarios but we don’t have the inputs to know which will occur. The macro-questions dominate: how will the world have accommodated the virus? How will we deal with the economic consequences? How open will the global economy be? We could guess: some of those guesses will prove right, but does that really make the guessers prescient? It will be really important to remember that in the aftermath. What we coulddo is to ask “what would we likethe outcome to be?” and then try to work towards that, to build alliances, to nudge opinion to try to achieve it. I suspect that, though is a longer term project as will those critical questions about the nature of work, the nature of retail and leisure, the path towards sustainability. 

Summer 2021 will mark the end of another academic year. It is likely to be a strange, sombre one. We are slowly getting used to online delivery of lectures and seminars, dealing with students and colleagues in diverse time zones, changing modes of assessment. It isn’t the same. I suspect (expect is too strong) that much will still be in place this coming year. Our student cohorts are unlikely to have their cosmopolitan, international character and that will have severe financial and academic consequences: we’ll be facing difficult decisions. We will begin to rethink what it is to deliver education, but that’s for the future. Our international research networks will survive, are surviving, through well-attended web seminars. We’ll yearn to meet up face-to-face but it will be harder to justify big conferences. We will get lots of requests to research CoViD outcomes but few offers to fund that research.

My predictions for June 2021:

Yes or No, Higher or Lower is insufficiently nuanced! In keeping with the piece, my one word is “dunno”. If I had two words, they’d either be “don’t know” or “it depends”.

UK in recession: Dunno.

It’s probably not going to be, but only because it’ll have fallen so much in Q2 2020 that it’ll have moved above that base for at least one quarter.

Sterling vs US$: Dunno.

Sterling vs Euro:Dunno.

UK base rate: Dunno.

UK RPI: Dunno.

My World 2021, zOurWriters2

About Colin Lizieri

Professor Colin Lizieri PhD FRICS FRGS is Grosvenor Professor of Real Estate Finance at the University of Cambridge, Head of the Department of Land Economy and a Fellow of Pembroke College.

Articles by Colin Lizieri

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