With the population of retirees forecast to grow from 1.5 billion to 2.1 billion globally in 2050, demand for long-term secure income streams and particularly real estate is expected to continue to grow in the long term, according to a new research published by Savills.
The current disruption within the traditional retail and office sector has driven a decline in the average lease length attached to a typical property investment, which means that the largest and most liquid parts of the market will no longer offer the level of annuity matching that they used to, Savills says.
‘Pension funds have always been significant investors in land and property, and rising needs for more pension provision will mean that more pension and annuity fund money will be targeted at the sector. The challenge however for these global pension fund investors over the next decade is going to be the scarcity of these long income opportunities,’ notes Mat Oakley, head of Research, Savills EMEA.
Over recent years capital allocations have increased into the residential sector, namely multifamily and senior housing, which are driven by global demographic factors rather than the cyclical health of the economy and the recent effects of Covid-19. It is this long-term appeal that is of greatest value to global pension funds, and it will continue to drive demand for such assets.
Institutional investment into residential asset classes has grown by almost 50% in the last five years, and it shows no sign of abating.
‘Demographic trends such as ageing, urbanisation and shrinking households are likely to be immune to the effects of Covid-19 long term and will only strengthen investor appetite for this sector,’ notes Paul Tostevin, director, Savills World Research. ‘However, with long-term low interest rates ensuring that real estate remains in demand as an asset class, the low availability of high quality stock means that competition for these operational assets is likely to be fierce.’
Mat Oakley adds, ‘Rising demand for longer-income assets will, I believe, meet a falling supply and a rise in prices. This means it will not only be senior housing that benefits from an ageing population, but segments as diverse as pubs, logistics, data centres and offices.’
