Our global population is ageing. Fertility rates are declining. Society is adapting to new ways of living and working.
Changing demographics drive long-term changing demand for real estate and are closely connected to the developments that we will need to see in our urban spaces. In our September blog we considered how cities are evolving. In this blog we consider how demographic changes impact society’s real estate demands, and consequently, how real estate investors will need to respond and adapt. With change comes opportunity!
The developed world is ageing
We are living longer, and whilst the world’s population is forecast to grow, that growth will not be spread evenly across the world – the balance in population growth is shifting to Asia and Africa. A projected slight decline in European populations, combined with increased longevity, will result in ageing societies in the majority of the developed world. In the UK, the retiree cohort (age 65+) is projected to increase by 11% in the next 10 years alone. By 2040, it is estimated that there will be 16.2 million people aged 65 or over in the UK, an increase of several million on today’s figures. A longer-living population poses many issues for society, including greater demand for appropriate housing, increased health and social care requirements and a shrinking workforce resulting in a possible decline in economic productivity.
What does this mean for real estate? In the developed world, the 65+ population is more active and wealthier than previous generations. They want a social community, accessibility in their housing and proximity to family and services (for both leisure and health purposes). There will be a consequential change in spending patterns too – tomorrow’s older consumer will be more technologically savvy, and this will drive online and hybrid retail. There will be an inevitable increase in the need for retirement and care home spaces. Traditional senior living properties tended to either give residents a high level of independence, or a high level of support, and were often segregated from other social spaces – the senior living facilities of the future may offer both independence and support whilst also being more integrated into the wider community.
One of the themes emerging from our September blog on the evolution of cities was the increasing social and economic value of multi-use space. We expect to see a similar trend in the development of age-friendly accommodation – spaces which can offer health, social and palliative care, alongside community and leisure facilities – designed with independence, wellbeing and connectivity to wider society in mind. For older retirees, the demand for housing that can be easily adapted for specialist needs will increase, given the inevitable rise in the number of people living with chronic disabilities and illnesses. So, at the development stage of housing, consideration will need to be given to “ageing-in-place” features, such as more wheelchair access, less reliance on stairs and increased use of sensors. The use of technology will play a vital role in enabling people to stay in their homes for longer.
The social benefits of integrated, adaptable, age-appropriate housing should also be recognised by investors. Integrated communities where residents have company and can live active and social lives lead to better mental and physical health and wellbeing. This has the benefit of reducing reliance on over-stretched public healthcare systems. Ultimately, mixed-use, integrated senior living will help deliver a better quality of life for all of society.
We have seen local authorities more willing to require new developments to provide social housing. We could see that power extended to include requirements for housing appropriate for older residents and family groups – to support the truly integrated societies as opposed to segregated demographic groups.
Other demographic shifts
Whilst life expectancy is increasing, we are seeing this trend intersect with declining fertility rates. Europeans are not only having fewer children, but they are also looking to start families later in life – this has resulted in a lower birth rate and a rapid growth in single-person households, creating a need for smaller homes. Household compositions and family structures are changing and becoming more diverse – housing needs to accommodate multigenerational homes, single person households and blended families – and the real estate sector needs to accommodate all of these demographic changes: another reason that flexible-use space will be in high demand.
With fewer children being born, the proportion of retirees increases relative to the working-age population. This shift poses challenges for social welfare systems, public healthcare and pension schemes, in addition to the challenge of meeting the real estate demands. So, it is not just the planners who will be at the forefront of designing systems that facilitate development to address changing demands; politicians and tax authorities will need to address sustainable ways of facilitating a wealth shift from the older population to the younger. This will enable the latter to fund their own needs and spread wealth more smoothly across the age groups. The health and social care contract that has been in place since the second world war will, in our view, need to be re-written.
Whilst our populations are ageing and birth rates are declining, Generation Z (those born between 1997 and 2012) is coming of age. Gen Z, a more mobile, digitally savvy and environmentally conscious cohort, has become the largest generation in the world, and this has significant implications for real estate. As this generation gains experience and moves into decision making roles, green cities, accessible amenities and flexible housing models will become the norm.
Investors looking to diversify assets for growth and resilience need to consider current and future demographic changes. It will be important to factor demographic shifts into investment plans to remain competitive. An ageing population will result in changes to real estate requirements which are much wider than just housing demand. Here, we’ve focussed primarily on the developed world – the challenges and opportunities in the developing world and emerging economies are myriad: watch this space for more on that in a future blog.