Like the Chinese New Year Zodiacs, Global real estate group TIAA Henderson Real Estate (TH Real Estate) has marked 2015 as the year of resurgence for global real estate investing by Australian institutional investors, with Australian super funds leading the charge in search of long term stable income opportunities outside Australia.
In a briefing in Sydney on 19 November, Executive Director and Head of TH Real Estate’s Australian business, Nick Evans, said key demographic trends are impacting the investment decisions of the world’s largest investors - including pension funds, endowments and sovereign wealth funds.
However, Australia’s fast growing super funds are at the forefront with a series of demographic megatrends converging on Asia and key gateway global cities.
According to 2014 data from Rice Warner, Australia’s top ten super funds are on track to each amass assets of more than $100bn.
“Australian superfunds are rapidly joining the ranks of the world’s largest investors – yet at the same time fast growing out of the domestic real estate market,” Mr Evans said.
“Funds are also searching for better investment solutions for an increasingly ageing member base – people who want secure income at a reasonable level of risk to support a lengthy retirement.”
Earlier this month, TH Real Estate launched its inaugural global ‘megatrends’ report, which outlines why the real estate industry needs to be more focused on overarching trends and insights which will impact the future use and demand for real estate globally over years and decades.
The report highlights five demographic megatrends that TH Real Estate believes will have the greatest impact on real estate:
Alice Breheny, Global Co-Head of Research at TH Real Estate said, “At TH Real Estate, we are committed to capturing long-term, structural changes in both occupational demand and capital flows, creating sustainable real estate products relevant to both operators and investors, and future proofing our clients’ interests.”
“Megatrends, such as the ones highlighted, should be used in both defensive and offensive strategies. On the defensive side, investors should be mindful of the impact they may have on the long-term viability and relevance of markets, sectors and assets. At the same time, investors should be on the offensive to seek out and exploit those trends that will create new opportunities or result in long-term structural uplift in rents or pricing. Operators in all sectors will be monitoring trends and opportunities in emerging markets, and smart investors should be too.”
“Having identified the most compelling opportunities, the key to investor success will lie in execution. Understanding local market dynamics is key. Although megatrends by definition are multi-jurisdictional, their impacts can be quite local in nature. As such, our top-down analysis is focused on cities rather than countries.”
Mr Evans said sophisticated larger investors were increasingly attracted to a highly tailored approach whereby they partnered with TH Real Estate to create a segregated global real estate portfolio to suit their particular risk and return profile.
In Australia, this approach has been targeted by Australia’s largest super fund, AustralianSuper, which has partnered with TH Real Estate to drive its emerging global real estate strategy.
“Major investors are approaching global real estate in a very different way to pre- GFC days, and we expect to see more Australian funds building a tailored approach that gives them the flexibility, exposure and returns they need,” he said.
The full report on TH Real Estate’s megatrends is available to download at:
Australia’s Megatrend Data
Australia is becoming increasingly urbanised, as evident from the 2011 census data indicating that 88.9 per cent of the population lived in urban Australia - areas of towns and cities of more than 1,000 people. Figures of urban living organised by state shown below.
According to .id, “This level of urbanisation is strongly increasing over time and has been doing so for many years. Just between 2006 and 2011, the Australian total went from 88.0 per cent to 88.9 per cent, and increased everywhere except the Northern Territory. The drop there is probably due to better Census counts of the more remote communities, where there were major difficulties in the 2006 Census.”
The Rise of the Global Middle Class
According to the Australian Institute’s 2007 paper The State of the Australian Middle Class, “The Australian middle class has not shrunk over the 11 years to 2005-06 but has in fact grown slightly, from 50 per cent of households to 51.1 per cent of households.”
And according to 2012 data from OECD Observer, “The size of the “global middle class” will increase from 1.8 billion in 2009 to 3.2 billion by 2020 and 4.9 billion by 2030. The bulk of this growth will come from Asia: by 2030 Asia will represent 66 per cent of the global middle-class population and 59 per cent of middle-class consumption, compared to 28 per cent and 23 per cent respectively in 2009”
Mario Pezzini, Director of OECD Development Centre, explains the significance of this growth, “The developing world’s “emerging middle class” is a critical economic and social actor because of its potential as an engine of growth, particularly in the largest developing countries such as China and India but also in sub-Saharan Africa.”
“Middle classes are believed to support democracy and progressive but moderate political platforms. Strong middle classes can influence economic development through more active participation in the political process, expressing support for political programmes and electoral platforms, in particular those that promote inclusive growth,” he said.
Shift of economic power from the West
For Australia, the TH Real Estate megatrend report reinforces the growing importance of Asia as an investment opportunity set on investors’ doorstep, as the region leads the way in terms of urbanisation, the rise of the middle class, ageing demographics and a beneficiary of the overall shift of economic power.
Asia will add 771 million of urban population from 2010 to 2030, accounting for more than half of the world’s urban population growth
By 2030, Asia’s contribution to global output will be larger than Europe and North America combined.
Asia’s proportion of employment in financial and business services, the sector that has traditionally been the largest contributor of the world’s GDP, will increase most dramatically but still only account for roughly 12 per cent of its total.
Half of the estimated Top 10 cities of 2030 are Asian cities
1. Tokyo, Japan (GDP: 2,380 US$bn)
5. Shanghai, China (GDP: 1,093 US$bn)
7. Osaka, Japan (GDP: 928 US$bn)
8. Beijing, China (GDP: 903 US$bn)
10. Tianjin, China (GDP: 864 US$bn)
The Old age dependency ratio is defined by the proportion of people aged 64+ to those aged 15-64. The TH Real Estate report predicts that Australia’s ageing demographic will increase from 4 million (2010) to 7m by 2030, ranging from 30-40 per cent of Australia’s population.
The TH Real Estate report measures global interconnectedness by the Oxford Economics 2014 data of predicted internet users as percentage of total population of each country in 2030. Australia has been ranked, alongside North America and Europe, as a continent predicted with 80 per cent of the population to be internet users by 2030.