FDI & real estate get closer as supply chain concerns grow

The overlap of foreign direct investment (FDI) and real estate has become more pronounced and attracting FDI has expanded from bringing companies to a city or region to include bringing institutional capital into those markets.

“Real estate has always been incredibly important for FDI, because companies need adequate real estate. especially commercial and industrial real estate, in which to locate and they also need nice housing for their employees,” explained Fingar Direct Investment founder Courtney Fingar.

She said that the remit of investment promotion agencies – those entities charged with attracting investment – is expanding to include drawing in institutional investment and other broader types of investment, in addition to greenfield foreign direct investment where a company sets up a physical facility.

“They need to start thinking more holistically about their development goals are what are the economic needs in their location and how can private capital serve those needs,” she told Real Asset Media’s Richard Betts. She added that this means looking beyond getting a company to set up a production facility, a headquarters office or R&D centre.

Fingar also said that another reason that links between FDI and real assets are getting closer, particularly for logistics real estate, is because of the supply chain volatilities of the last few years.

She said that after “a rocky few years for foreign direct investment”, particularly because of covid, a strong recovery began in 2021 and 2022.

This recovery is now under threat due to geopolitical tensions, particularly the war in Ukraine, supply chain disruptions, inflationary pressures “and a general feeling by investors that the world is quite risky right now”.

Some issues, particularly supply chain disruption and the war in Ukraine, are causing a wholesale reallocation of global footprints by multinational companies.

“Many got burned by their exposure to China as a result of covid and are thinking how to reallocate production facilities and other types of FDI projects,” Fingar said.

“We’re seeing the FDI map changing a lot,” she added. Companies are looking at their risk portfolios and thinking where the safest places to invest might be.

One consequence is that we will start to see more FDI projects, but of smaller size.

Fingar said supply chain worries are one of the top boardroom issues of concern. Supply chains are being de-risked, shortened.

“We’re seeing a lot of movement in terms of where companies operate production facilities, but also where they build distribution centres,” she said. “It’s all about being a bit closer to source, closer to where production takes place and closer to customers. So this is creating a lot of demand in certain places in the world that are benefiting from this trend for warehousing and logistics facilities which of course means a need for improvements in infrastructure, investments in infrastructure and of course investments in industrial real estate.”

Please click on the video above to watch the full interview or listen to the podcast below.