Guiding Lines: Aging Europe Needs Fewer Offices

But in less than 50 years the state of affairs on the commercial real estate market across the globe and in Europe in particular will change radically due for purely objective reasons such as irreversible demographic change.

In their article “Real Estate Prospects in an Aging Europe” Professor Piet Eichholtz of Maastricht University and Doctor Dirk Brounen, associated professor at Erasmus University Rotterdam, the Netherlands, cite data proving the likelihood of such changes.

The authors of the study divide the world into developed economies or mature countries, emerging markets (where Russia belongs) and the rest. Most of the countries that fall into the first two categories have already seen a peak in the growth of the working-age population and are nearing a downturn, with the exception of Australia and the United States, where the number of people of working age will peak in 2005.

It is worth noting that the world is already past the peak in the cumulative growth in working-age population. According to the study, the cumulative growth in the labor force for the period 1950-2000 was 67.0%, while the expectation for the period through 2050 is a slight decrease of 4.5%. For the world as a whole, the historic growth was 152.6%, while growth of 53.4% is expected by 2050.

The world – Europe, in particular – is aging. Accordingly, in the near future the situation on the commercial real estate market is likely to change radically. For example, the office market will be transformed from a growth market into a replacement market. Indeed, why develop office properties while the labor force shrinks?

Given those circumstances it would be logical to direct investment into developing economies. But there the situation is scarcely any better, because the Czech Republic, Hungary and Poland, for example, have already passed the peak in their population growth, and are all expected to have decreasing labor populations through 2050 (by 16.7%, 24.2% and 14.7% respectively). The only nation likely to generate office demand is perhaps Turkey, where a growth of 43.2% is expected over the next 45 years.

The situation in the shopping and leisure real estate sector is somewhat better. The demand for bread and circuses is felt in all age categories and is not likely to wane, at any rate, not in the countries where population growth is not yet on the decline. As to the economies in transition, their demand for modern retail and leisure facilities is clearly overstated.

Meanwhile, British investors renowned for their foresight are already examining new commercial property sectors, in particular, the development of specialized clinics and assisted-living compounds for the aged.

The insurance department of the British government expects the number of people over 60 to double within the next 30 years. The growing demand against the backdrop of scarce supply, as well as the availability of government support and high occupancy rates, leave no doubts as to the great potential of “pensioner-oriented business”.

Sunrise UK Development has invested $1 billion in the development of a chain of assisted-living compounds across Britain and Germany. By 2008 the company will have developed as many as 25 compounds in Britain, each providing accommodation for up to 100 people.

Compounds targeting chiefly well-off senior citizens – a week’s stay will cost 600 to 700 pounds, electricity charges excluded – will be made up of houses designed in the style of the 1920s-1930s. Given the general aging of the European population the demand for such facilities is likely to grow stably.

The only factor likely to alter the situation is migration. The United States, Australia and Canada are not as prone to aging namely due to an inflow of migrants. Even hurricane-plagued Florida receives up to 1,000 immigrants daily.

Stretching across the two continents Russia, too, may successfully overcome the demographic crisis if the growing population in the eastern provinces is encouraged to move westwards.

Meanwhile, a Chinese language course has been launched at one Moscow school. Who knows, maybe, in the light of natural migration the knowledge of Chinese will be of more use to the Next Generation than it is to us.