EUROPE – Pension fund investors will need to be more selective about the property investments they make in the future as a decreasing European labour market is likely to slow the growth of demand for office space, according to the University of Maastricht.

Speaking at the IPE Real Estate Investor Forum in Amsterdam this morning, Nils Kok, who is currently working on his PhD in real estate finance at the University of Maastricht, told delegates the implications of changing demographics in Europe and, more importantly, predictions of decreasing populations are likely to slow the growth of demand for offices within 10-15 years, even though the shift of populations is towards working the service sector.

While not directly suggesting there will be a decrease in demand for office space and a subsequent impact on the returns potential of investment in office real estate, Kok suggested Europe will see reduced growth of requests for office space because their populations are ageing faster than their birth rates, and there will be therefore be fewer people working in offices.

"When we think about demographics [in relation to real estate] we tend to think about the residential market, but there are implications for the office and retail space," said Kok.

"Looking the EU 15 countries, by 2050 the labour population will decrease by up to 19% in total from 724 million people to 611 people. This actually leads to less demand for office space. Whereas in the past employment growth was the main driver for office space [demand], this will be replaced by the growth of flexible working within the labour market.

"Over the next 10-15 years, the labour population is declining. There are jobs but no people to fill them, so this has a major impact for the office [real estate] market," added Kok.

He stresses it is likely there will be continued demand for offices over the next 10-15 years but the focus will likely shift towards the desire for more space per individual as the number of potential tenants reduce and more people work from home.

"The office space per worker is increasing with flexible office space. But likely more demand for space per office, albeit only once the rents have fallen. It is therefore important investors and developers look for quality. This might seem like a bleak picture for the office space [market], but in the retail market the picture is similar."

More specifically, Kok is predicting the migration shift from Central and Eastern Europe and the growth of the EU is unlikely to boost demand for office space because people moving from the Czech Republic, for example, will move into service sector employment positions which do not need offices but the quality retail real estate investment market may fare better if they alter their target markets towards ageing populations.

In contrast, however, Robin Goodchild, international director of LaSalle Investment Management, accused Kok over "overstating" the impact of changing demographics and migration on demand for office space because Eastern European workers are tending to move from manufacturing and agricultural roles into the service sector.

Kok responded by arguing at the same time as population rates are declining "the growth of the service sector is declining as well", reiterating there is less growth of demand for office space so it is "very important" suppliers and developers "take this into account".

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