Megatrends affecting real estate investing

Looking at the big picture, some key trends will affect the usage and demand for real estate globally and over the next decade: Urbanisation, a shift of economic power, the rise of the global middle class, ageing populations and global interconnectedness.

In their report “The ‘Famous Five’ - The five demographic megatrends that real estate cannot ignore”, TIAA Henderson Real Estate (TH Real Estate) looks at the game changers that have the biggest impact on real estate usage and investing over several time horizons. The report identifies five megatrends, that are most crucial to recognise when investing in real estate: Urbanisation, a shift of economic power away from the West, the rise of the global middle class, ageing populations and global interconnectedness.

All over the wold, people move to cities. Asia’s urban population will, for example, grow by a 771 million people in the years to 2030, says the report. And still, America, Europe and the Middle East will remain the region with the highest proportion of urban population. According to TH Real Estate, early movers can benefit from investments in real estate by identifying the most promising urban markets and understanding the local planning legislation, environmental constraints and fundamental underlyings of local supply and demand.

Second, economics power will shift from the West to Asia by 2030. In that year, office space in Asia will count for almost half of the world’s total. Other emerging economies will require an additional part of the globally used office property. “It is important to identify the new growth markets before the market becomes saturated or over-supplied,” says John Sharp-Pail, Head of Portfolio Management Asia at TH Real Estate.

Third, the number of middle and high-income households will more than double from 444 million in 2010 to 1,019 million in 2030. Most of the new wealth created will be gathered in Asia, says the report. As increasing incomes will increase spending, real estate investors can benefit from structural changes in the retail sector such as fashion outlets as well as in the field of leisure and hotels.

The ageing population is changing real estate markets. The proportion of elderly (those aged over 64) is expected to increase by 50%, from 8% of total population in 2010 to 12% in 2030, says the report. This trend is likely to change the nature office properties where more flexibility may become an competitive advantage as well as properties for elderly living. Overall, increases in taxation in order to fund pensions may lower the attractiveness of complete regions.

Finally, global interconnectedness influences real estate. As technology improves, the connection and communication between the world’s different regions increases. This makes the market more homogenous and accessible. Moreover, retail properties may be less attractive as renters come under pressure due to an increase in e-commerce. Less office space will also be required as more work is done remotely.