Tom Duncan, Cromwell’s Head of Research and Investment Strategy, has been working in the real estate industry for nearly two decades. His passion for providing advice that leads to tangible change is what drove him to pursue research. He recently visited Cromwell’s Australian offices where we sat down to discuss the current issues impacting the market, developments in office space post-COVID, and some of the projected trends driving Cromwell’s investment decisions.


“Research and investment strategy can spot potential vulnerabilities in our existing portfolios."


1. Tell us about your role  

I’m head of research and investment strategy at Cromwell. My role is to produce research which resonates with the market and that explores topical issues. A lot of my time is spent developing our investment strategy, which sits across all the work we do at Cromwell and guides how we invest in our existing funds, as well as how we position new products and funds to benefit from changes in real estate demand as they play out.

2. How does Research inform Cromwell's Investment Strategy?

Research is fundamental to the investment strategy. My team sets the top-down direction which determines how Cromwell should invest in terms of real estate sectors, locations and assets. This is based on analysis of how occupier demand is evolving, as well as our house view on economies and real estate markets.

We overlay that with bottom-up property market expertise derived from our local teams in Europe and Australia. It’s the combination of top-down strategic insight with bottom-up local expertise about assets and market dynamics that creates a powerful investment thesis.

In addition to that, research and investment strategy can spot potential vulnerabilities in our existing portfolios. It allows us to see elements that may be unfavourably exposed to markets or trends which could mean a potential future loss in value. Pre-emptively identifying such risk allows us to adapt our portfolios in advance in order to maintain and enhance value.

3. What impact has rising inflation and the war on Ukraine on the market/real estate?

Our house view on inflation is that it will be high in the short term, but inflationary impacts will ease in the medium term.

We think supply chains will adapt, which will alleviate some of the immediate pressure driving inflation. We are currently in the epicentre of the high inflationary environment but we see these forces weakening going forward.

Labour is also driving inflation higher, but we think the labour availability will increase now that COVID is in the rear-view mirror particularly in Europe, and people are able to travel more freely. Less restrictive travel should allow labour markets to be more liquid which will enable better balance between supply and demand.

In terms of Ukraine, it’s a topic which is at the front and centre of investors’ minds, particularly in Australia I’ve noticed. Putting aside the tragic human cost of the conflict and looking at it from a pure real estate angle, in Europe, the conflict hasn’t had a dramatic impact on market activity to date. Investment volumes were maintained in Q1 as the conflict broke out and we’ve seen some large transactions in Warsaw; Google bought their office building there in March this year, which is a sign of confidence in the market.

Whilst we consider the direct impacts of the conflict on real estate are likely to be minor, the indirect impacts on GDP, which is a leading indicator of real estate demand, are more concerning. If higher energy prices endure that could result in lower economic output. In that sense it may weaken the growth story for Europe. But fundamentally Europe is still a growing economy. GDP growth is still forecast alongside population and employment growth even with the Ukraine conflict, so there will be an ongoing need for new real estate. That’s in addition to the structural changes in how real estate is used which supports additional demand, such as the shift to online retail or the need for new residential stock to serve an ageing population.

From a demographic sense, Europe has seen a considerable influx of refugees from Ukraine. They tend to be well educated, younger than the average European and have been granted full live, work and study rights by the EU. Thus, Ukrainian refugees provide a boost to economic and supply demand. We believe many may choose to settle more permanently in the EU if the conflict continues. That would increase consumer spending, support more demand for the offices in which they’ll work, and the houses in which they’ll live. For a real estate investor that means greater demand for space.

4. What trends do you think will have the greatest impact on real estate in the next ten years?

Sustainability and ESG. There are two major considerations in terms of these environmental aspects.

Firstly, there’s a physical risk to consider; as weather patterns change and become more erratic, the risk of stranded assets rises. For example, you might occupy a building with glass frontages but then you learn that as temperatures rise in that city, it could become unbearably hot in that building if cooling systems cannot be improved. So, what was once perceived as prime real estate could lose value.

The other consideration associated with the environment is the desire from occupiers to lease buildings that are energy efficient and sustainable. That’s the concept behind our European wooden buildings fund - we think there’s a rental premium for buildings that are made of wood because they suck carbon out of the atmosphere when they’re constructed and then retain it.

5. You wrote an article about the evolution of the office in edition 36 of Insight. Can you give us a short update on the office market?

I think Europe is ahead of the curve compared to Australia in returning to the office. That’s because, as I mentioned before, COVID is in the rear-view mirror in Europe. We’ve seen workers return to the office en masse, albeit under the hybrid approach as the new normal.

Now that activity is picking up in Europe, we’re seeing office investment volumes increase. Occupiers are committing to new, prime space that’s capable of facilitating hybrid working staff. We’re seeing occupiers pay rental premiums to occupy that space.

In the hybrid world, average office buildings are no longer going to cut it. In the past that might have been okay, but nowadays a successful future-proofed office needs the trifecta of a strong asset, a strong macro location and a strong micro-location. Offices need all three elements to secure performance.

I think there’s still a lot of change to play out and that creates an opportunity for informed investors like Cromwell. We really understand future occupier demand in terms of physical characteristics of space. That means we can manage our existing offices in order to maximise alignment with occupier demand and drive more revenue. We can also take advantage of mispricing opportunities which might emerge in the next 12 months to buy offices with long-term potential that are being unfairly discounted in the short-term.


Read more: Offices 2025: Research briefing note



6. What are the benefits of seeking exposure to the European real estate market for Australian investors?

The European real estate market is significant in terms of size: it accounts for about 35% of the global investable real estate universe, which is ten times larger than Australia. The diversity that comes with that is quite phenomenal.

One of the benefits of investing in Europe is that it’s a sophisticated market so a lot of the trends happening there can be applied to the work we at Cromwell do in Australia. For example, there’s often novel concepts which develop in Europe that could then be exported to Australia. Having presence in both markets enhances our investment decisions through knowledge transfer and gives us a pre-emption of the way things could develop.

There’s also more dynamism in Europe – it’s home to over 630 million people – and constitutes different countries with different trends and real estate needs. Investors gain exposure to a range of different characteristics that you don’t get in Australia, so in terms of a diversifier, it’s a compelling proposition. That’s why we’re seeing more Australian investors increasingly look at that market.

7. What do you find most rewarding about working in research and investment strategy?

I think where research is most interesting and can add value to a business such as Cromwell is when it is applied through investment strategy. That type of research is proactive and forward focused – looking at how things are going to change in the next five to ten years and then working that back to actions we can take today to protect, create and grow performance. The investment strategy can inform new product launches, provide strategic advice on how we should manage our existing portfolios, and be used to engage with our investors to educate them on our investment rationale.

A major benefit of an investment strategy is that we can tell investors what we’re going to do and then go through and demonstrate that we’re executing and delivering on what we said we would. Our research isn’t just a theoretical paper that we publish which goes no further. We use it as a basis to invest with conviction.


“Where research is most interesting and can add value to a business such as Cromwell is when it is applied through investment strategy.”


8. What do you do to relax? How do you spend your time outside work?

I have my wife and young child at home so they both keep me busy. Florence, my daughter, helps me keep focused on the here and now, and not thinking about work when I’m enjoying time with her.

As an ex-Bondi resident, exercise is very important for me. I got into the habit of getting up extremely early and going down to the beach, and that’s something which is an important part of my day – getting up and doing some exercise. It helps me to chill out mentally, and it’s as much a mental effort as it is a physical effort for me.