Global demographic developments are marked by urbanisation, globalisation and ageing. Digitalisation is having major impact on how we live. The need to be more sustainable is greater than ever and political tensions are emerging right across the world. It is in this world of constant change, some gradual and some very sudden, that Bouwinvest makes its long-term investments.
The dominant global long-term trends, which we also see reflected in the Netherlands, are population growth, ageing, urbanisation and – at every level – polarisation. While the global population is set to grow by around two billion to 9.7 billion people over the next 30 years, an increasing number of countries will actually see their populations decline. For instance, Europe is expected to see its population shrink in the coming decades (through to 2050). And China will also see a slight decline in population, while the US will record moderate growth in population numbers. This will change how countries compare with each other, in terms of size, demographic composition and relative distribution at a global level.
Population concentrations are also changing within individual countries, driven by the urbanisation trend. According to World Bank forecasts, in 20 years some 92% of Americans will be living in urban areas, compared with the current 83%. China is expected to see the proportion of people living in cities increase to 80% in 2050, compared with the current 60%. In 2040, three quarters of the Dutch population will be living in cities with 100,000 or more inhabitants.
This urbanisation will create an enormous demand for real estate, but will also create a number of challenges in terms of liveability, accessibility and affordability in ever-growing cities. Bouwinvest believes that major urban centres that manage to achieve a balance between demographic growth and a safe, affordable and sustainable urban environment will continue to be successful.
On a global level, we will see an ageing of the population, driven by increasing life expectancy and declining birth rates. For instance, in the Netherlands one in four people will be 65 or older in 2035; and one in six of these people will be 85 or older. This ageing will drive a shift in preferences in terms of how we live, how we work and how we spend our leisure time, and this in turn will also change the mix of real estate we will need. On top of this, the ratio of the working population to the non-working population will decline. That in turn will require a different kind of focus from local and national governments, with pressure on fiscal resources, on investments in healthcare, pensions, education, new technologies and maintaining economic growth.
Continued internationalisation of the academic world and employment, the growth of the Asian middle class and the increasing importance of the ‘experience economy’ are ingredients that are expected to drive a rising demand for hotel rooms and student accommodation. The current coronavirus situation will have a negative impact on this development.
In the coming decades, digitalisation, artificial intelligence and robotification will have a major impact on how we live, work, shop and get around. Smart buildings can help improve the comfort of our homes and our living environment. At the same time, the introduction of new technologies will also have an impact on how we work, and potentially on the office market. The growth of the international online retail market will reduce the demand for brick and mortar stores, but will also drive increasing demand for logistics real estate.
These rapidly changing technological developments will create opportunities for real estate investment managers, but they will also have to remain vigilant. Real estate investment managers will have to anticipate and respond to these trends and developments, to seize opportunities and limit the attendant risks.
To do this, real estate investment managers will have to use increasingly advanced methods to make the best use of the information they already have access to and new information that will become available in the future.
Sustainability and climate change
Countries are becoming increasingly aware of the need to take action to tackle the negative effects of climate change, the lack of sustainability and increasing social inequality. This is resulting in new legislation and new standards in the fields of renewable energy, maintaining biodiversity, cutting back on the waste of raw materials and the functioning of the labour market. We still have countless problems to overcome; these include reducing the environmental impact of building materials, keeping urban areas affordable, the availability of skilled workers, safe working conditions and the availability of affordable sustainability measures.
On a global level, awareness is growing that we need to do something to bring the warming of the earth and rising CO2 emissions to a halt. The Paris Climate Agreement and the United Nations’ Sustainability Development Goals provide guidance for the actions we need to take. And an increasing number of countries are indeed taking action. The Dutch Climate Agreement includes a target to reduce CO2 emissions by 49% in 2030 compared with 1990 and 95% by 2050. And the country has set very ambitious targets with respect to the use of primary raw materials: 50% less primary raw materials in 2030 and a waste-free economy by 2050.
The built environment accounts for 30% of global CO2 emissions and the construction industry is a major user of raw materials. We will see a growing global demand for sustainable and circular buildings among the buyers and users of real estate. We also expect to see steady growth in sustainable mobility, including the use of public transport, which will make developments close to public transport hubs attractive investments.
The World Economic Forum considers climate-related risks one of the biggest threats to our prosperity. The physical risks (floods, heavy rainfall, drought, heat and extreme winds) are increasing, but the transition risks are also growing as a result of additional legislation governments are introducing to put a brake on global climate change. There is a risk that an increasing number of places on earth will become uninhabitable. Not only will this drive demand for climate-resilient real estate in certain parts of the world; it could also lead to social unrest.
The Dutch real estate market has been overshadowed by the recent rulings on nitrogen emissions. This is making it more difficult to get building permits in the vicinity of conservation areas. The concentrations of PFAS in soil are another problem.
In 2019, the political world was dominated by the Brexit negotiations in Europe, growing geopolitical tensions, trade restrictions, including those between the US and China, and the prolonged protests in Hong Kong against more political interference from China. Even now these are still major issues and they are having a negative impact on economic growth.
On top of this, we have seen populists emerge firmly at the forefront of political discussions in a number of European countries, although there are certainly countries where this trend has been halted, or even reversed. However, populist sentiments can result in economies that are more closed than they are right now, which could in turn result in a shrinking European economy.