Are you over 55? Have you been planning for your retirement over recent years? You and billions of other people acting individually and collectively are altering the way that global investment behavior and real estate investment is fundamentally changing forever.
The numbers of older people (over 55) in the world by 2050 will be 2.5 billion, which is greater than the entire population of the planet in 1950. Improvements in lifestyles and healthcare now mean that more of us are set to retire than at any point in history. This has enormous implications for how we plan, invest and execute our retirement plans, and this is why real estate investment is becoming so much more important for institutional investors.
Many governments recognised these changing demographics some time ago, establishing compulsory pension or superannuation schemes whose sole aim is to invest contributions on behalf of their aging populations; Australia, Canada, New Zealand and Malaysia are just some of the countries that have established such schemes. These government schemes operate alongside personal and company pension plans whose demographic profile has changed substantially over recent years. European pension funds on a net basis now have greater outflows than inflows and as people move closer to retirement so they need a more predictable income stream, putting less of their hard earned capital at risk.
This is where real estate plays a crucial part; it provides exactly the type of investment that pension schemes are looking for: lower risk more predictable income streams that allow them to match their outflow liabilities.
And we are seeing the implications of this within commercial real estate investment markets already. A bigger and bigger proportion of overall activity is being made up by institutional investors. Currently their market share is 20%, but we expect this to increase significantly in the future as they execute on bigger and bigger investment requirements.
Global transactional volumes were US$705 billion in 2015, by 2020 we expect the market to be US$1 trillion a year, boosted in part by the desire from institutional investors to dedicate more and more capital to real estate. This will see core real estate investment move across more geographies, covering more sectors, and becoming more sophisticated. The change is only just beginning; the next decade will see real estate investment transformed completely. Are you ready?
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