ULI Report Touts Emerging Markets’ Potential

MBA (6/13/2008 ) Sorohan, Mike
Two trends—growing populations in developing countries and “dramatic” demographic shifts in the U.S.—will shape “vast opportunities” for real estate development in the next 20 years, according to a new report from the Urban Land Institute.
The report, Global Demographics 2008: Shaping Real Estate’s Future, describes aging as “the world’s most dramatic demographic trend.” By 2030, one in eight of Earth’s population will be 65 years of age or older; in the United States. Aging of baby boomers and the “coming of age” of echo boomers will lead to a dramatic increase in single-person households, driving demand for more multifamily housing in both retirement and workforce categories, said M. Leanne Lachman, president of Lachman Associates LLC, New York, the report's co-author.

“Working with demographics, rather than against them, reduces development risk and is likely to enhance returns,” Lachman said. “Therefore, the…emphasis on real estate demand has broad applicability for both investors and developers.”

China, India and the United States—the three most populous nations today—will remain so, but India will surpass China in population by 2030, with the U.S. remaining third. Asia has 57 percent of the world’s population (3.7 billion), which is expected to decline to 55 percent by 2030, “but will still capture half of population growth between now and 2030… as populations of India, Pakistan, Bangladesh and other nations in Southeast Asia will skyrocket,” Lachman said.

The Americas, with 904 million people, has a projected growth rate of 26 percent between 2005 and 2030.The report said the growing senior population and a declining proportion of children and working-age residents would characterize growth in North and South America. Another trend leans toward smaller household size and more single-person households—and better quality housing.

The report added that household growth would outpace population, citing U.S. Census Bureau statistics showing nearly 30 million one-person households in the U.S. and more than one million new households being formed formed annually. Nearly one-fourth of all homebuyers are single women, the report said.

Demand for multifamily housing in North America will continue to grow over the next 20 years, the report said, with demographics trends “promising,” including young people, immigrants, in-migration, lifelong renters, lifestyle renters, transition households and second/third-home renters. Driving this demand is a significant number of people turning 18: more than 4 million Americans in each of the next 12 years and 400,000 Canadians each year until 2019.

“This will drive demand for student housing and entry-level apartments,” Lachman said. “Half of U.S. population growth by 2030 will be the result of immigrants, their children or grandchildren. Hispanics are the fastest growing immigrant group in the U.S. and will account for a substantial share of new housing demand. Immigrants to Canada come heavily from the U.K. and former British colonies and are concentrated in Toronto, Montreal and Vancouver.”

The report supported data showing greater urbanization worldwide: in North and South America, 80 percent of residents live in urban areas. But Latin America and the Caribbean will have 26 metro areas with a population of more than 2.5 million by 2015; Brazil will have 10; and Sao Paulo and Mexico City will each add 2.2 million people in the next 10 years.

“This is not going unnoticed by retail chains in the U.S. and Europe,” Lachman said.

Eastern Asia, which includes China, Hong Kong, Japan and South Korea, now has 41 percent of Asia’s population, but will see declines by 2030, the report said, attributable in part to aging and low fertility rates.

By 2015, the report said, seven of the world’s 10 largest urban agglomerations will be on the Asian continent and will be home to more than 15 million people each: Tokyo, Mumbai, Delhi, Shanghai, Kolkata, Dhaka and Jakarta. By 2030, Indonesia’s urbanization will approach that of Japan.

Most growth will occur in the developing regions of Asia, Africa and the Middle East, all of which will need infrastructure investments along with real estate development. “Demand for modern real estate is overwhelming in these rapidly emerging markets,” said report co-author Deborah Brett of Deborah L. Brett & Associates, Plainsboro, N. J.

One area that will not see growth is Europe, the report said. Europe’s share of the world’s population will drop from 11 percent to 8 percent by 2030, as the population shrinks by 40 million. One exception is the United Kingdom, which will see an increase in population of 9 percent, attributable to immigration. Low fertility rates throughout the continent will add to labor shortages and by 2030, if trends continue, Europe will have 59 dependents for every 41 working-age residents, the report said.

By contrast, Africa and the Middle East currently have more than 17 percent of the world’s population, but this will expand to 22 percent by 2030.

“Africa, which has the world’s youngest and fastest growing population … will account for one-third of global growth over the next 25 years,” Lachman said. The 50 countries of Sub-Saharan Africa will experience population growth of 70 percent between 2005 and 2030, the fastest growth rate in the world. The 23 countries in the Middle East and North Africa have a projected growth rate of 43 percent.

The report also emphasized the vast development potential of emerging markets. China’s and India’s rankings among the world’s largest economies are rising—a trend noted by American consumers who have seen gas prices surge past $4 a gallon as the oil-producing countries address growing petroleum consumption there. The report said China has “leapfrogged” over the U.K., France and Italy and is overtaking Germany. India shares 11th place with South Korea but is growing faster.

“In the first half of 2007, the increase in consumer spending in China and India added more to global GDP than that in America,” Lachman said. “By 2050, China will be the dominant economy and outrank the United States.”