PERSPECTIVE3-5 min to read

Outlook 2022: Global cities

Pricing power will be key as rising input prices and labour shortages drive prices higher. However, continued scarcity and accelerating demand will boost some sub-sectors.



Hugo Machin
Co-Head of Global Listed Real Assets
Tom Walker
Co-Head of Global Listed Real Assets
  • Input prices and labour shortages are pushing prices higher. Companies that are unable to pass these costs on will suffer.
  • Continued scarcity and accelerating demand will drive specific sub-sectors of the real estate market in 2022.
  • We expect performance to diverge dramatically and areas of the market, such as residential, will have enough pricing power to provide a real return in the face of stronger inflation.

Pricing power will be key in 2022

Supply chain disruption has caused goods inflation, and this is now feeding into the labour markets. Any area of the real estate market that uses materials and employs people will be negatively affected, unless they can pass these costs on to their customers.

However, certain subsectors remain undersupplied – storage, warehouse, data centres, residential – and with little new meaningful supply on the horizon, these are the sectors that could see growth in 2022.

We believe these four sectors could do well in the current environment. They are not exposed to cost inflation, but they benefit from ongoing demand.

Residential is the sector that we believe could be the strongest performer in 2022. Demand continues to outstrip supply and higher interest rates would make housing even more expensive to buy and build. This will further choke new supply, making housing affordable to those with the lowest cost of capital (i.e. institutions). The rental businesses, in all market segments, should also enjoy robust growth. The supply of family homes in the US is at the lowest level since the 1970s and, consequently, house prices have increased dramatically.

Warehouses have powerful customer tailwinds for space demands that cannot be met. As e-commerce moves to more than 40% of all sales in many markets, in-fill warehouses are in short supply. Share price performance will only be driven by further spectacular leasing demand but operating fundamentals are robust.

Digital infrastructure will be a key focus in 2022. The proliferation of connected devices and increased software demands puts these assets at the heart of the digitisation of the global economy.

Self-storage is a sector with many positive attributes. The current low levels of supply, strong pricing power and good operating platforms will enable many companies in the sector to pass on higher prices without incurring costs to the business. In other words, a strong inflationary hedge.

Shops, offices and homebuilders may struggle

Higher input prices and structural headwinds mean we are concerned about the performance of the following three sectors in 2022.

Shopping malls will struggle, despite a nice bounce through 2021. As malls operate in the discretionary spending space, they are likely to be hardest hit by inflation as the cost of essential goods rises. There is also a high reliance on staff for the underlying retailers within the malls, whose wages will need to increase.

Homebuilders and lodging companies will also be vulnerable to higher wage costs. The former might be able to pass this on until house prices moderate, which is likely if interest rates do rise. The latter is also vulnerable to continued uncertainty around travel, given ongoing travel restrictions as a result of the Covid-19 crisis.

The office sector is also evolving rapidly as companies adjust to new working patterns. The lockdowns have caused a fragmentation in the office sector: only assets of the highest quality will attract employees back into the workplace. While there will be a potential shortage of the best offices in the best locations, less favourable office space will become increasingly obsolete.  

Opportunities available, even as markets become more challenging

We are convinced that real assets, particularly in the sectors we favour, will be a strong hedge against inflation. They have an abundance of pricing power which will be vital as inflation accelerates. Therefore, performance should diverge dramatically: only certain areas of the market will keep up with inflation.

While we believe the returns from the real estate sector in 2022 are unlikely to match the performance seen in 2021, some other asset classes are likely to fare even worse.

We continue to believe that opportunities can still be found in challenging markets and that investing in assets in the strongest locations provides the best protection against any potential headwinds. We also remain positive on how investee companies will perform in 2022, given their resilient balance sheets.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Hugo Machin
Co-Head of Global Listed Real Assets
Tom Walker
Co-Head of Global Listed Real Assets


The value of your investments and the income received from them can fall as well as rise. You may not get back the amount you invested.