What is happening right now?

Perhaps it will only be in 2022 that we will have really understood how heavily we have become dependent on Russian oil and gas. Russia's invasion of Ukraine has shown us that such dependence on an unpredictable country can no longer be entered into. This is why we will also have to fundamentally question our relationship with China in the coming years; at least with regard to the military dangers arising from our economic relations with these countries.

As a result, energy prices will remain high in the coming years and supply chain disruptions related to China will enter a new phase. There is no ray of hope on the inflation horizon due to energy prices and globalization effects. We may assume for the foreseeable future that peaceful, open and democratic societies will not develop in either country.

We can see the effects of very high inflation. There is a considerable loss of prosperity on all sides, including Russia and China. Initially, politicians are trying to mitigate this loss of prosperity in our country through subsidies. However, redistribution and borrowing will only redistribute the losses or postpone them into the future.

The ECB will remind us and the state by raising interest rates that no one will be spared this loss of prosperity. There will be a recession. How long and how severe it will be remains to be seen.

Businesses will have to respond. Energy costs in production must be reduced, either through innovation, alternative energies or relocation of production sites to regions with lower energy costs. This is necessary because rising energy prices and the associated second-round effects on other raw materials as well as wages cannot all be passed on to selling prices at the same time.

If we are lucky, this crisis will be seen as a catalyst for the energy transition in a few years, just as World War II triggered a boom in manufacturing through innovation. But for this to happen, we must succeed in the coming years in freeing our economy from its dependence on fossil fuels. Only in this way can a path to new prosperity be paved.

In terms of investing in real estate, we have definitely learned two things in 2022:

  • The CO2 emissions associated with the building are critical to the value of the investment. Lending institutions are starting to look critically at energy performance certificates. If we discontinue this, efforts will be required to maintain the loanability of buildings.

  • 100 € does not always remain 100 €: Inflation reminds us - at least the older among us - that indexed leases are important. Indexing should start when the lease is signed, not when you move into the building.

Berlin, 12/14/2022

Your contact person

Asger Nielsen

Managing Director


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