The Industrial Paradigm Shift on Thesis Driven
The Industrial Paradigm Shift on Thesis Driven
My deep dive on the policy, economics, and real estate impacts of reindustrialization.
The balance of infrastructure, labor, and public support will leave only a handful of markets where this new economy can thrive. Identifying those areas and improving their competitiveness will define outsized investment results in the next decade.
I have been writing extensively about domestic reindustrialization trends. I touched on them here and here in the context of public market opportunities. Today on Thesis Driven, I take a more macro view of those trends and how they are shaping the real estate investing landscape broadly.
As always,
is an excellent editor, but I wanted to touch on a few ideas here that were left on the cutting room floor. It is impossible to assess how a changing economy will impact real estate without understanding how the previous regime shaped the present. As I state in the piece,Policy and capital flows are huge levers in the real estate market. Incentives drive capital, and in turn, capital attracts talent.
For the U.S., a commitment to free trade, deregulation, and the primacy of shareholder returns resulted in a services-led economy. The largest, most successful companies today are relatively asset-lite compared to the mid-century industrial stalwarts and invest far less in physical capital.
The impacts on real estate were twofold. First, capital flowed to hubs of digital innovation, which attracted high-paid talent. Real estate development then followed those higher incomes. Finding “the next SF/Austin/Nashville” became the name of the game. Second, an economy based on “knowledge work” was embodied in the physical environment.
Globalization, free trade, and the 21st-century march towards an economy that relied on imported goods created the real estate landscape we are familiar with today: Relatively denser areas of offices and retail, dotted with multifamily and surrounded by suburbs and ex-urban areas where industrial and logistics activities take place. This is obviously a simplification that does not fully describe every MSA, but it does broadly reflect economic and political trends over the past thirty years.
You cannot simply graft an industrial economy onto this environment. It has different requirements. It is capital intensive—not in the way that building a high-growth start-up requires lots of cash, but in the way that building complex manufacturing facilities requires real capital that the country largely let atrophy. It also requires a much more diverse labor pool. A hub of digital innovation basically needs software engineers and bartenders, but a dynamic production economy needs the entire spectrum of talent, from Phds to machinists to bricklayers.
There will undoubtedly be skeptics who believe the recent push for reshoring production is a passing populist flare-up. People who have been investing for the past 20 years certainly have little evidence that the past is not prologue. Real estate investors are now known for creative projection, and few are rewarded for breaking from consensus. I will posit, as always, that great investment returns are born more frequently from differentiated views of the future than dogmatic adherence to established models.
I hope you enjoy the piece on Thesis Driven. Lewis Enterprises subscribers have the opportunity to subscribe to both publications for the price of one. Brad is offering 40% discounted Thesis Driven subscriptions as am I. Those offers can be claimed via the links below. Thanks for reading.
