Global real estate landscape enters new era

4th March 2014

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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As confidence returns to the real estate industry following the global financial crisis, the industry needs to gear up to adapt to a “fundamental shift” that will “shape its future” over the next six years, a new report by professional services firm PwC revealed on Tuesday.

The ‘Real Estate 2020: Building the future’ report predicted that rapid urbanisation, evolving technology and innovation, increasing sustainability demands and demographic changes, particularly within emerging markets, would change the face of the real estate industry by 2020.

“The real estate industry is at the centre of rapid economic and social change, which is transforming the built environment. Already thousands of people migrate from country to city across Asia, the Middle East, Latin America and Africa, attracted by the wealth of these new economies,” PwC global real estate leader Kees Hage said.

By 2020, the twenty-first century’s “great migration” to the cities would be well under way, but the “huge” expansion swelling the fast-growing countries of Asia, Africa, the Middle East and Latin America, would deliver mixed results.

Looking to South Africa, PwC asset management and real estate leader for Africa Ilse French said, despite Gauteng’s R110-billion infrastructure budget, the province could struggle to absorb its ever-growing population on the back of strained electricity and water resources and stressed education and health facilities, besides others.

Gauteng currently boasted 11-million residents, but by 2020, a further 11-million people would likely descend upon South Africa’s most populous province, bringing the number of residents to 22-million.

Even the developed Western countries would experience urbanisation, albeit at a slower pace, the report pointed out.

However, while some cities would become “centres of wealth creation in a multipolar world”, others were likely to fail.

“Those that emerge as their region’s leading cities are likely to provide opportunities for attractive returns,” Hage said, adding that cities would be competing “fiercely” with each other, requiring real estate managers and investors to seek out new opportunities for yield.

French noted that private capital, taking “financial centre stage”, would play a critical role in funding the growing and changing need for real estate and its supporting infrastructure.

“Just as asset managers, real estate funds and sovereign wealth funds will find the assets under their control swell, so will there be a growing need to finance urbanisation,” she explained, adding that real estate managers would need to leverage the full range of financing possibilities to take on new types of risk, often with long-term investment horizons.

“Yet, the growing and changing real estate world will present them with a far wider range of risks, which they must be equipped to manage,” Hage said, noting that they would also have a broader range of opportunities and new value drivers.

The growing middle class and ageing populations in emerging economies were increasingly demanding “specific types” of real estate, such as affordable housing, retirement accommodation, gated communities outside cities for families and smaller urban apartments without kitchens or car parking for young professionals, the report revealed.

Further, sustainability was expected to transform the design of buildings and developments, while technology would “disrupt” real estate economics.

The growth in online shopping was reducing the need for retail space, revealed the report, but the shorter delivery times were increasing the need for warehouse space close to customers. The need for office space would also decrease as workers increasingly worked from home or satellite offices.

“The global megatrends will change the real estate landscape considerably over the next six years and beyond. While these trends may already be evident, there’s a natural tendency to underestimate how much the real estate world will have changed by 2020,” Hage stated.

It would increase the size of the asset pool and change the nature of investment opportunities – in effect, the real estate market would become far bigger and more global.

“The global investable real estate universe will expand substantially, leading to a huge expansion in opportunity, especially in emerging economies,” French added.

The report predicted that the global stock of investable real estate would jump more than 55% from $29-trillion in 2012 to $45.3-trillion by 2020, before recording another 50% hike by 2030.

The total investable real estate in sub-Saharan Africa was expected to surge 90% to $700-billion by 2020, while the Middle East and North Africa recorded a 62% increase to $2.5-trillion over the next six years.

In the Asia-Pacific region, the total investable real estate would increase 37% to $5.4-trillion over the same period.

Growth in the US/Canada and Europe would rise 38% and 27% to $11-trillion and  $8.6-trillion respectively.

“While most of these trends are already evident, there’s a natural tendency to underestimate their implications over the next six years and beyond,” Hage pointed out.

The report outlined several “success factors” that industry players should target, including a global network with local knowledge, good government relations, specialist expertise and innovation, and a focus on cost management and scale.

“And, above all, there is a need to have the right people: to attract, retain and invest in them,” Hage concluded.

Edited by Tracy Hancock
Creamer Media Contributing Editor

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