IN FOCUS6-8 min read

Q&A: The demographic challenge facing European cities

We ask global cities investor Tom Walker about whether long-term demographic trends pose a potential challenge to real estate investing.



Mark Herlihy
Investment Writer

Covid-19 and the subsequent lockdowns around the world have had a devastating effect on global economic growth. However, according to a recent study the most significant challenges facing cities in Europe were present before the pandemic, in the form of long term demographic trends.

With birth rates declining in many countries and political resistance to large-scale immigration, this could have a significant impact on urbanisation levels, weakening economic growth in many parts of Europe and cutting demand for real estate assets. We spoke to fund manager Tom Walker, who specialises in investing in global cities, to find out more.

What factors have led to a declining population in some European countries?

Tom Walker said: “The population of Western Europe is predicted to peak in 2033 before declining by more than 20% by the end of the century, according to a study published in the UK medical journal The Lancet. The study, by the University of Washington (and part-funded by the Gates Foundation), found that while the US population remained stable, population declines had been seen in a number of eastern European countries since the early 1990s. A number of Western European countries had already passed their population peak. These countries include Italy, Spain, Greece and Portugal.

“This population decline, particularly in Europe’s southern and eastern regions, is predominantly due to low birth rates, lack of economic dynamism and political aversion to immigration. These trends raise a number of questions over the long-tern economic prospects for Europe.  Real estate is simply a proxy for GDP therefore, real estate investors may find it harder to achieve rental income and capital growth in these locations.  As an investor with a global opportunity set, I believe other regions such as Asia or the Americas will offer higher levels of growth.”

What impact will an ageing population have on these countries?

Tom Walker said: “With fewer younger people, Europe’s total dependency ratio – the number of people aged under 15 years or above 64 years of age per 100 people– is projected to rise to 73.9% in 2050 from the current level of 54.3%. Fewer younger people in the key 25-39 age group, which typically drives economic growth, could spell trouble for the continent’s economic prospects.”

How will global cities be affected by these trends?

Tom Walker said: “Despite the gloomy predictions, many global cities will be less affected by this trend than at national levels. The most important global cities (for example, London or New York) always attract young people at the start of their careers from within their own country and also abroad, attracted by the better opportunities on offer. As a result, we believe that rental income from the assets situated within these dynamic cities will be less affected by these broad trends.”

What does this mean for investors?

Tom Walker said: “While declining populations will undoubtedly have serious consequences for economic growth, the data suggests Europe is most at risk when compared to Asia or the Americas. Fewer people means lower productivity, although increased use of automation may partly offset this.”

Which global cities will continue to thrive?

Tom Walker said: “Despite these challenges, we continue to believe that certain cities will continue to thrive and be the main drivers for economic growth in the country or region they are located in. Cities remain the most efficient way for humans to live and urbanisation will continue to expand.

“Global cities will undoubtedly adapt to the “new normal” and the way we use buildings in global cities will change. However, this is nothing new. In London, for example, old warehouses by the side of the Thames that were once used for storing commodities brought to the city’s port by ship, have now been repurposed as high-end luxury housing. And data centres and warehouses are now replacing shopping malls as consumer habits change.”

Why are global cities so resilient?

Tom Walker said: “One of the key advantages of global cities is the ability for industries to cluster together, thereby boosting efficiency by sharing knowledge and expertise. This attracts external capital, creating a self-fulfilling prophecy of investment and returns.

“The expertise of some global cities may become even more concentrated in the future, for example in areas such as finance, media and technology. As people travel less the need to be based in the hub of your professional field will increase.”


Mark Herlihy
Investment Writer


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