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When investing in real estate, one should be able to identify the various trends affecting the real estate market, said Andrew Rich, Director at TH Real Estate. He recently spoke to CommercialGuru about the five global megatrends that has the greatest impacts on real estate.
“There’s a whole suite of global megatrends that we’ve been analysing and trying to think about what impact they would have on the real estate market over a long period, and we’ve effectively filtered it all down to the five megatrends that we believe has got the great impact,” Rich said.
According to TH Real Estate, the five megatrends include urbanisation, shift of economic power from the west, the rise of global middle class, ageing demographics and global interconnectedness.
Urbanization
The rate of urbanization globally is greater than it has ever been, said Rich. In 2012, for the first time, more people in the world live in cities than those outside the city, he added. According to the TH Real Estate report, almost two thirds of the world’s population are expected to live in cities by 2030.
This offers developers and investors the opportunity to anticipate and satisfy the robust demand from businesses looking for representation within the world’s biggest cities. In fact, demand for modern office and retail space within the fastest growing cities will likely be fierce, it noted.
“That, on the face of it, is a positive one for real estate investors because as long as you’re investing in cities than in non-urban locations and that means there will be continued demand for the places on where you’re investing,” said Rich.
Shift of economic power from the west
TH Real Estate expects Asia’s contribution to global output to exceed that of Europe and North America combined by 2030.
This comes as the economic power of developed countries in the West is being challenged by emerging markets in the South and East.
Notably, Asia’s role in the global economy is expected to be particularly significant due to rapid urbanisation and huge populations in China and India.
“By 2025, China would have fully gained its position as the global centre of economic activity in terms of people investing in Europe,” said Rich.
“That’s always been happening for a while, that’s no news to anybody, but that certainly doesn’t seem to concern people when making allocation decisions because money still come to Europe.”
While majority of the world’s top 50 cities over the next 15 years will likely be coming from Europe and North America, a lot of these cities would have dropped out of the top 50 by 2030 because they have been replaced by Tianjin and other Chinese cities.
“It doesn’t mean that European cities haven’t been growing in the meantime but on a relative basis they’ve been overtaken,” he said.
Rising Middle-class
The number of middle and high-income households will soar from 444 million in 2010 to 1,019 million in 2030, said the report.
Asia will account for 46 of the 50 cities with the biggest forecast change in wealthy households between 2010 and 2030.
This could generate robust growth in spending “on travel which in turn drives demand for leisure and hotels, creating further opportunities for real estate investors or developers,” Rich said.
Ageing population
An unprecedented ageing of population is taking place globally, with the proportion of elderly (those aged over 64) expected to jump by 50 percent, from eight percent of total population in 2010 to 12 percent in 2030.
“Ageing countries face potential decline in economic growth or stagnation, which can negatively affect the demand for all types of real estate,” said the report.
Despite the concern of slower economic growth due to ageing, the elderly population represents a significant spending group.
“20 years ago, an over 65 would spend very little in discretionary capital on clothes, entertainment, travel, and that doesn’t happen anymore because some of these over 65 are relatively healthier than you’d expect them to be,” shared Rich.
“This piece of information is important for property investors,” Rich said, “because if you own a shopping centre for example, years ago you’re always thinking about the 18-year-olds because you want to attract them to your business, if you continue to think like that now, you’d be missing a big part of the pie.”
Technology and global interconnectedness
Of the five megatrends, technology is the fastest moving one, said Rich.
Aside from changing the way people use office space, technology also facilitates the ability to work remotely. This allows people to live further out of the city centre, providing growth in peripheral or satellite cities.
It has also opened up a lot of new markets for real estate investor. Markets which were not transparent and liquid 20 years ago have become more so due to technology.
Overall, TH Real Estate said these megatrends should be used in both defensive and offensive strategies.
“On the defensive side, investors should be mindful of the impact they may have on the long-term viability and relevance of markets, sectors and assets,” it said.
“At the same time, investors should be on the offensive to seek out and exploit those trends that will create new opportunities or result in a long-term structural uplift in rents or pricing. Operators in all sectors will be monitoring trends and opportunities in emerging markets, and smart investors should be too.”
Rich said these megatrends are opportunities more than they are challenges.
“In order to take advantage of the megatrends as an opportunity, you’ve got to know what is going on and you need to be the one of the first people to know what’s going and keep up with the current practices. It is very much now looking in cities, mostly [sic]. But what we should note is not all cities are going to be the same, not all cities in 20 years’ time are going to be bigger and better, of course there would be winners and losers. Identifying the cities which structurally are best place to take advantage of growth and can absorb more people is really key,” Rich added.
Nikki De Guzman, Editor at CommercialGuru, wrote this story. To contact her about this or other stories email nikki@propertyguru.com.sg
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