Making the most of the CRE "Liminal Space"

Navigating Uncertainty with Resilience

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In our recent 汉斯 Mid-Year Investment Outlook, our Global Chief Investment Officer David Steinbach and Global Head of Research Josh Scoville, CFA aptly described our current commercial real estate market condition as a "liminal space." This evocative term, borrowed from the realms of anthropology and psychology, captures the essence of being on the threshold between two distinct states: a period of easy financial conditions and a new, as-yet-undefined market regime. For those who began their careers in commercial real estate post the Great Financial Crisis, this is the first time they’ve had to navigate through a period of this nature – and, as those more tenured leaders who have been through multiple cycles know, these periods are when you learn the best lessons.? Liminal spaces are marked by uncertainty and vulnerability, but they also offer unique opportunities for growth and transformation.

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Understanding the Liminal Space

Why is being in a “liminal space” so psychologically hard?

The concept of liminality, introduced by anthropologist Arnold van Gennep and expanded by Victor Turner, describes the middle phase in rites of passage. In this state of "betwixt and between," we are no longer who we were but are not yet who we will become. This disorienting yet potent space can be a powerful catalyst for personal and organizational transformation.

This goes against our human instincts, because we are programmed to solve for stasis and stability as a matter of survival.? Our brains are trained on pattern recognition.? Uncertainty and a new market regime deviate from the pattern, and this feels like a threat.? Our instinct is often to try everything possible to make the threat go away, and revert to the pattern.? Sitting patiently inside the uncertainty and vulnerability, without pattern recognition to rely on, doesn’t suit most of us.? But the trick, psychologists tell us, is actually to sit right inside that feeling of threat and vulnerability and notice what it has to teach us.

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How can you thrive in the liminal space?

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Periods of uncertainty can be unsettling, triggering anxiety and stress. However, there are strategies to make the most of it:

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1. Embrace Uncertainty as Opportunity: Viewing uncertainty as fertile ground for new possibilities, rather than a threat, can shift our mindset from fear to opportunity.? As longtime Hines senior executive Hasty Johnson often says, “It is during times like this that we can be at our most innovative.? From frustration and closed doors, creativity comes out more than ever.”? Some of the most successful new strategies Hines has pursued in its 65+ year history have been borne directly out of market downturns that necessitated reinvention. That said, that is difficult to do when we’re fearful about what the future holds for us, and whether that future brings upside or downside – hence number two:

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2. Make self-awareness your superpower: The anxiety of being in a liminal space can negatively affect our thinking and our behavior.? It can cause us to go into “fight or flight” mode and work against each other for our own survival - unless we consciously prevent that from happening.? One of my favorite sayings from my graduate school education in Social Psychology is that unconscious group dynamics only have power over us as long as they are allowed to stay unconscious – if you can name them out loud and speak straight down the fairway about what’s really going on, unconscious group dynamics lose their grip on your behavior.? In other words, the unspoken “elephant in the room” can kill you, but sometimes all it takes to kill the elephant is to say its name out loud and call attention to it. This requires having a heightened awareness of the unspoken dynamics going on around us.? Mindfulness-Based Stress Reduction (MBSR) is a well-researched science.? Lest we cast the idea off as "too soft," its worth being curious how to manage the triggers and defenses that keep us from being grounded in present facts and realities. By focusing on the here and now, we can enhance our ability to respond thoughtfully rather than react impulsively or out of fear.

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3. Cultivate Resilience: There will be setbacks – that’s unavoidable.? What matters is how we deal with them.? Carol Dwek’s work on “growth mindset” shows why some people can bounce back much more resiliently than others: When encountering obstacles, those with a growth mindset (e.g., those who believe that they are always learning and growing as a result of their own effort; they see their capability as not fixed or inherited) are more likely to see obstacles as opportunities to learn and grow, rather than as insurmountable problems.? They fundamentally believe there is always more to learn and understand, therefore it doesn’t feel like an existential threat to reach the limit of one’s current capabilities.? People with a growth mindset are also better at receiving feedback, and therefore more adaptable to change.?

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As we navigate this liminal space in the commercial real estate cycle, let’s remember that uncertainty is not only a challenge to be endured but an invitation to innovate, grow, and transform. By embracing vulnerability, practicing mindfulness, cultivating resilience, and adopting a growth mindset, we can not only cope with uncertainty but also find opportunities to emerge stronger in the new market regime.

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Feel free to connect and share your thoughts on navigating the current moment.? I’m looking forward to learning from what’s worked for you.

Read Hines' full 2024 Mid Year Global Investment Outlook here.