Real Estate 2020 Building the future PwC

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Part one Introduction 4,Part two Real estate s changing landscape 8. 1 Huge expansion in cities with mixed results 9, 2 Unprecedented shifts in population drive changes in demand for real estate 12. 3 Emerging markets growth ratchets up competition for assets 14. 4 Sustainability transforms design of buildings and developments 16. 5 Technology disrupts real estate economics 18, 6 Real estate capital takes financial centre stage 20. Part three Implications for real estate strategies 22. 1 Think globally 23, 2 Understand the underlying economics of cities 24. 3 Factor technology and sustainability into asset valuations 25. 4 Collaborate with governments to enable economic and social progress 26. 5 Decide where and how to compete 27, 6 Assess opportunities to reflect a broader range of risks 28.
Part four Success factors 30, 1 A global network with local knowledge and good government relations 31. 2 Specialist expertise and innovation 32,3 Cost management and scale 34. 4 The right people 35,Part five Conclusion 37,Contacts 38. PwC Real Estate 2020 Building the future 3,Introduction. It s March 2020 Ahmed Naneesh chief investment officer of a sovereign wealth. fund and steward of one of the world s largest real estate portfolios is chairing. a panel at the Singapore World Real Estate Forum 2020 s leading real estate. event The topic for debate is Building the Future Surging Demand for. Real Estate Capital, In the past few years demand for private capital for real estate investment and supporting infrastructure has increased.
enormously In the emerging economies the great migration to the cities growing population and swelling middle class. are creating a desperate need for more urban real estate In the advanced economies the cities are also growing although. not so rapidly while technology demographics and environmental issues are becoming new value drivers As Ahmed s. panellists relate and the forum organisers broadcast on the Web to watchers worldwide real estate as an asset class is. changing fast Mega real estate managers are emerging which are building and investing in real estate on an epic scale. yet small specialist managers are also playing a significant part The landscape is becoming more widespread and complex. with a wider range of risk and return than ever plus new drivers of value. Looking forward to 2020 and beyond the real estate investment industry will find. itself at the centre of rapid economic and social change which is transforming the. built environment While most of these trends are already evident there s a natural. tendency to underestimate their implications over the next six years and beyond. By 2020 real estate managers will have a broader range of opportunities. with greater risks and new value drivers As real estate is a business with long. development cycles from planning to construction takes several years now is the. time to plan for these changes, Already thousands of people migrate from country to city across Asia the Middle. East Latin America and Africa on a daily basis attracted by the new wealth of these. economies By 2020 this migration will be firmly established The cities will swell. and some entirely new ones will spring up Meanwhile the growing emerging. markets middle class and ageing global population are increasing demand for. specific types of real estate Subsectors such as agriculture education healthcare. and retirement will be far bigger by 2020,Disclaimer. This paper makes a number of predictions and presents PwC s vision of the future environment for the asset management industry. These predictions are of course just that predictions These predictions of the future environment for the asset management industry. address matters that are to different degrees uncertain and may turn out to be materially different than as expressed in this paper The. information provided in this paper is not a substitute for legal and other professional advice If any reader requires legal advice or other. professional assistance each such reader should consult his or her own legal or other professional advisors and discuss the specific facts. and circumstances that apply to the reader,4 PwC Real Estate 2020 Building the future. High energy prices climate change Figure 1 Global institutional grade RE. and government regulation are already, pushing sustainability up the real estate In USD trn Compound Annual Growth Rate. agenda but by 2020 their impact will,be far greater Technology is already 45 3.
disrupting real estate economics but 45 5 8,by 2020 it will have reshaped entire 40. sectors And the real estate community 35 20 3,will have taken a greater role in the 8 2. financial ecosystem in part moving into 25 23 8,the space left by banks 10 3. 20 18 9 6 9,14 6 8 1 8 9,Our fictional forum illustrates some 15 4 6. 5 9 2 0 3 7,elements of this change We believe the 25 0.
10 16 9 18 7,new era of real estate investment to 5. 2020 and beyond is the beginning of a, time of unprecedented opportunity for 2004 2007 2012 2020. real estate investors and asset managers,n Developing countries n Developed countries. although with greater risk The global, stock of institutional grade real estate Source PwC analysis. will expand by more than 55 from,US 29 0 trillion in 2012 to US 45 3.
trillion in 2020 according to our Figure 2 Relative size of institutional grade RE per region. calculations It may then grow further to,US 69 0 trillion in 2030 see page 7 for 100. explanation of methodology This huge,expansion in investable real estate will. be greatest in the emerging economies 80,where economic development will lead 70. to better tenant quality and in some,countries clearer property rights And it. will play out across housing commercial 50,real estate and infrastructure Indeed 40.
as intense competition continues to,compress investment yields for core real. estate real estate managers will have 20,every incentive to search for higher 10. yields elsewhere 0,2004 2007 2012 2020,On the next page we highlight our six. n Latin America n Sub Saharan Africa n Developing Asia Pacific n Middle East and North Africa. predictions about what this means for n Commonwealth of Independent States Central and Eastern Europe n North America n Euro Area. real estate managers and the investment n Asia Pacific. community After that we describe our Source PwC analysis. view about the likely changes in the,landscape their possible implications. and how we believe you should prepare,for this fast changing world.
PwC Real Estate 2020 Building the future 5,Six predictions for 2020 and beyond in brief. The changing real estate landscape will have substantial implications for the. real estate investment community which we highlight below and describe in. more detail in Part three Implications for real estate strategies. 1 The global investable real estate universe will expand substantially. leading to a huge expansion in opportunity especially in emerging. economies World population growth and increasing GDP per capita will. propel this expansion By 2020 investable real estate will have grown by. more than 55 compared to 2012 according to PwC forecasts and then will. expand by a similar proportion in the following decade. 2 Fast growing cities will present a wider range of risk and return. opportunities Cities will present opportunities ranging from low risk. low yield in advanced economy core real estate to high risk high reward in. emerging economies The greatest social migration of all time chiefly in. emerging economies will drive the biggest ever construction surge. 3 Technology innovation and sustainability will be key drivers for. value All buildings will need to have sustainability ratings while new. developments will need to be sustainable in the broadest sense providing. their residents with pleasant places to live Technology will disrupt real. estate economics making some types of real estate obsolete. 4 Collaborating with governments will become more important Real. estate managers the investment community and developers will need to. partner with government to mitigate risks of schemes that might otherwise. be uneconomic In many emerging economies governments will take the. lead in developing urban real estate and infrastructure. 5 Competition for prime assets will intensify further New wealth from. the emerging economies will intensify competition for prime assets the. investment community will need to think laterally to earn attractive returns. They might have to develop assets in fast growing but higher risk emerging. economies or specialise in the fast growing subsectors such as agriculture. retirement etc, 6 A broader range of risks will emerge New risks will emerge Climate. change risk accelerating behavioural change and political risk will be key. In order to prepare for these implications the real estate investment. organisations will need to make sure they have the right capabilities and. qualities as described in Part four Success factors. 6 PwC Real Estate 2020 Building the future, Figure 3 Trends in institutitional grade RE per region. Latin America,Sub Saharan Africa,Developing Asia Pacific. Middle East and,North Africa,Commonwealth of Independent.
States Central and Eastern Europe,North America,Asia Pacific. 0 2 4 6 8 10 12,n 2004 n 2007 n 2012 n 2020 In USD trn. Source PwC analysis,Forecast methodology notes, The forecast for the value of institutional grade real estate assets is based. on a model that utilises economic activity as measured by GDP based on. 2011 Purchasing Power Parity and the observation that in a fully developed. economy institutional grade real estate represents about 45 of GDP 1 In. developing economies the amount of institutional real estate is adjusted. downward from the 45 base The classification developed vs developing. economy is accomplished using a ratio of GDP per capita in the country to a. predetermined threshold for each year The rationale for this adjustment is. that in developing economies less institutional real estate is required to meet. the needs of the economy and the quality of a majority of tenants would not. satisfy the criteria of RE institutional investors Although the forecast has not. been adjusted for properties obsolescence this factor can be noted from the. absolute projections for construction and therefore to be considered by the. investment community, 1 Prudential Real Estate Investors A Bird s Eye View of Global Real Estate. Markets 2012 update February 2012,PwC Real Estate 2020 Building the future 7.
Real estate s changing,Global megatrends will,change the real estate. landscape considerably,in the next six years and,beyond While many of. the trends highlighted are,already evident there s. a natural tendency to,underestimate how much,the real estate world will. have changed by 2020,8 PwC Real Estate 2020 Building the future.
Huge expansion in cities,with mixed results, By 2020 the 21st century s great migration to the cities will be well underway Cities. n By 2050 the urban will be swelling across the fast growing countries in Asia Africa the Middle East. and Latin America Even the developed Western nations will be urbanising albeit. population will increase, at a slower pace But not all cities will prosper While some become great centres of. by 75 to 6 3 billion wealth creation in a multipolar world others are likely to fail. from 3 6 billion in 20102, The volume of building activity will be huge expanding the world s inventory of. n By 2025 there will institutional grade real estate Global construction output is expected to almost. double to US 15 trillion by 2025 up from US 8 7 trillion in 2012 5 Emerging. be 37 megacities up markets in Asia will be the fastest growing region but sub Saharan Africa is expected. from 23 today and to be the second highest,12 of these will be in. Yet the philosophy of build it and they will come won t prove universally successful. emerging markets3 Some cities will grow and become creative hubs generators of economic growth. Others will destroy wealth with poor infrastructure slums and rampant crime. n 1 5 million residents Others still will be ghost towns In some countries the density of main cities will. a month will move to drive people away to rural environments or satellite cities. Chinese cities for the, rest of this decade4 Figure 4 World urban population from 1950 to 2050.
Population in millions,2 Source United Nations Department of Economic. and Social Affairs Population Division 2012,World Urbanization Prospects The 2011 Revision 0. 3 Source United Nations Department of Economic,and Social Affairs Population Division 2012. World Urbanization Prospects The 2011 Revision,n Rest of world n Asia n Africa. Megacities have populations exceeding 10 million, 4 Harvard Business Review blog Jan 2013 Source United Nations Department of Economic and Social Affairs Population Division 2012 World.
Euromonitor Urbanization Prospects The 2011 Revision. 5 Global Construction 2025 July 2013,PwC Real Estate 2020 Building the future 9. Figure 5 Urban and rural population trends,Millions WORLD Millions EUROPE. In China India and the Middle East,entire new cities will be built using. 4 000 400 eco efficient technologies to reduce their. PwC Real Estate 2020 Building the future 5 High energy prices climate change and government regulation are already pushing sustainability up the real estate agenda but by 2020 their impact will be far greater Technology is already disrupting real estate economics but by 2020 it will have reshaped entire sectors And the real estate community

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