Age drives office market rental growthSeptember 4, 2012 / By
“Demography is destiny” said 19th century French philosopher, Auguste Comte, and maybe he was right. Data from the 2011 Australian national census are emerging. They show that on census night, 9 August 2011, the Australian population numbered 21,507,717, an 8% increase since the count in 2006.
What else has changed over five years?
The proportion of Australians who live in capital cities grew faster than the total population; median age rose from 35 to 37 years; in 2011, 1.4 million Australians were in tertiary education institutions compared with 1.2 million in 2006.
So Australians are now more numerous, more urbanised, older and (arguably) smarter.
All these trends have implications for real estate markets.
Let’s focus on age:
Asia Pacific Then and Now, published in 2009 to celebrate the 20th anniversary of the Jones Lang LaSalle Real Estate Intelligence Service (REIS), profiled 17 major office markets across the Asia-Pacific region. Between 1989 and 2009, without exception, median age in all cities rose. Age and office rents are correlated. The markets with the highest rents in 2009 – Tokyo, Hong Kong, and Singapore – were also the markets with the highest median age: Tokyo (44.7 years), Hong Kong (41.9 years) and Singapore (40.6 years). The markets with the lowest 2009 rents (Jakarta and Kuala Lumpur) had median ages of 28.2 and 26.3 years respectively.
It is no surprise that larger markets (measured in square metres) tend to have higher rents. But, median age is statistically a slightly more powerful predictor of rental levels. With Hong Kong as an exception, the three markets that recorded the strongest rental growth (Beijing, Shanghai and Seoul) also recorded the biggest rise in median age (1989 -2009). In Singapore, for example, the median age of residents in 1989 was 29.3 years. Twenty years later the median age was 37.6 – a remarkable increase of more than eight years in twenty years.
Is this another spurious correlation? Maybe: but age does not work in a linear fashion. Assume everyone enters the work force at age 20 – admittedly a simplifying assumption. Then in 2009 the average Tokyo worker had been at work for 24 years while in Manila it was 3 years – that’s a vast difference in terms of experience, skill and productivity, which translates into wage levels, wealth and, especially, demand for white-collar services – banking, financial services and law.
Median age for Sydney and Melbourne is close to the regional average, and median age rose by a below-average 5.5 years between 1989 and 2009.
It’s probable that the ageing population has been one of the positive drivers of office markets across the Asia-Pacific region over the past two decades. And age profiles may give a clue to the future – cities with young populations may be candidates for strong future rental growth.
As the French philosopher observed:
“Death, too, may be considered a promoter of human progress. Youth is essentially progressive…if life were ten times as long progress would be greatly retarded.”
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