Ignoring Generic Oversupply:

Which would steer the fund clear of the oversupply of much generic real estate like traditional offices or standard warehouses: By focusing on the specific infrastructure needs of exponential industries, the fund can capitalise on the premium yields and resilient demand that will follow from low supply and strong, long term demand.

Prioritising High-Impact Arenas:

Not all of McKinsey's 18 "arenas of tomorrow" are equal in this respect. Not all have specialist needs. So the strategy should prioritise arenas where specialised properties are a prerequisite for industry growth. These include sectors with needs for cleanrooms, high power density, advanced logistics, or proximity to talent hubs, such as semiconductors, AI software & services (including AI infrastructure), robotics, EVs/batteries, and biopharma.

"Hard Tech" Focus:

The core focus should be on "hard tech" arenas where the physical infrastructure is as cutting-edge as the technology itself, rather than "asset-light" arenas that rely on existing real estate. This ensures capital is deployed where it is most indispensable and where competition from generic landlords is minimal.

Defining "Exponential Industries":

These industries are characterised by rapid, compounding growth driven by technological innovation, often on the steep part of the S-curve. Key hallmarks include high R&D intensity, escalatory investment, advanced infrastructure requirements, policy support, and large, growing addressable markets.

Beyond the Initial List:

The definition of "exponential industries" should be flexible to capture adjacent or emerging sectors that fit the profile but aren't explicitly listed by McKinsey, such as quantum computing, the hydrogen economy, AgriTech, fusion energy, and autonomous logistics.

Flexibility is Strategic:

A thematic but flexible strategy is crucial over a static sector approach due to the rapid pace of technological disruption and cross-sector convergence. This agility allows the fund to adapt to new opportunities (like quantum computing) without needing a mandate change.

Specialised CRE Requirements are Distinct:

Exponential industries have non-negotiable real estate and infrastructure needs that differ significantly from conventional property, creating high barriers to entry. Examples include the extreme requirements of semiconductor fabs (cleanrooms, ultra-pure utilities), the specific needs of life science R&D (enhanced ventilation, piped gases) and bio-manufacturing (GMP compliance, cleanrooms), the high power density and cooling demands of data centres (especially for AI), and the scale, power, and connectivity needs of advanced manufacturing facilities (EVs, batteries, robotics).

Significant Market Opportunity:

The global addressable market for specialised CRE serving exponential industries is immense and set to expand dramatically. The 18 arenas of tomorrow are projected to triple or quadruple in relative GDP share by 2040.

Massive Investment Flows:

There are already massive capital commitments to build out the infrastructure for these industries, such as the $1.8 trillion planned global data centre capex by 2030, significant investment in life science real estate, and the trillions being invested in advanced manufacturing facilities (semiconductors, batteries, EVs).

Favourable Supply-Demand Dynamics:

Unlike traditional CRE, many of these specialised sectors face undersupply and have highly specific requirements not easily met by existing stock, often necessitating new construction. This creates opportunities for premium rents and strong demand.

Outperformance Potential:

Traditional CRE sectors like office and retail are facing headwinds (high vacancy, slower growth) compared to the strong growth and demand in specialised sectors. Specialised tech real estate platforms have generally outperformed their office peers.

Tenant Stickiness and Long Leases:

Tenants in specialised CRE, such as semiconductor manufacturers, biopharma companies, and data centre operators, often make significant upfront investments in their facilities, leading to long leases and high tenant retention. This provides stable, long-term income.

Premium Yields and Rents:

Due to the specialised nature and high demand, these assets can command premium rents and yields compared to generic properties.

Defensibility and Ecosystem Value:

Creating these specialised assets requires expertise, limiting competition. Success often depends on integrating into wider ecosystems (power grids, transport links, talent pools, universities), creating defensible positions that are hard for competitors to replicate quickly.

‘In a world where generic real estate is increasingly challenged by technological shifts... this strategy invests in the real estate that technological shifts create rather than the real estate those shifts obsolesce.’

OVER TO YOU

Does this make sense to you? It’s complicated, and highly specialised - too much so? Who could pull it off? Is it one for small, highly focused teams, or as part of a Blackstone or Blackrock type portfolio?

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