How do changing demographics affect the real estate sector?

Shrinking and ageing populations

Since detailed records began in 1950, the global population has trebled in size from 2.5 to 7.4 billion, with only six small countries experiencing a decline. The future may be a lot less uniform. While the global population is expected to grow to 9.8 billion by 2050, 50 nations (representing a third of the global population) are expected to shrink. This projected decline is because birth rates have fallen sharply in many countries as women have become more educated and living standards have increased, with the result that younger generations are smaller than in the past. Moreover, the increase in life expectancy1, thanks to improved hygiene and medical advances, means that almost all countries have ageing populations. The median global age2 is expected to increase from 30 years old today to 36 years old by 2050. Chart 1 below illustrates these two demographic trends for a selection of countries and continents.

Chart 1: Selected national/continental median ages and projected population changes

 Source: UN

Older shrinking societies

Older shrinking societies face a number of demographic challenges. As the ratio of young to old people falls, so societies are likely to see:

• A falling working age population and slower economic growth;
• Weaker returns on equities and growth assets;
• Government finances strained by higher spending on pensions, health and social services and slower growth in tax revenues;
• Shifting patterns of wealth and potentially, greater inequality across generations.

Collectively these issues are likely to have a significant impact on people’s living, spending and working habits, as well as the political and social environment.

Commercial real estate owners and occupiers

Commercial real estate owners and occupiers can respond to these demographic challenges in a number of ways. Most obviously, they can cater to the increased demand for retirement villages, care and nursing homes. Developers and landlords can either create new space, refurbish existing space or convert buildings currently with alternative uses. However, while demand will inevitably grow, it is less clear how countries will fund the increase in social care and whether the fees paid by the government, or insurers will be sufficient to allow private operators to make a profit and pay the rent.

Landlords need to adapt

Landlords will need to adapt how they operate, locate and design their assets. Starting with retail, particularly in Japan, stores are increasingly adapting to an ageing population. At shopping centres and other retail outlets, landlords organise exercise classes and seminars on healthy eating in conjunction with local medical agencies and they also provide space for gatherings of hobby enthusiasts. Landlords and retailers can also adapt to meet the needs of older costumers in more discrete ways, by providing wider aisles, lower tables, more seating, easier to read menus and older salespeople.

The corollary of an ageing society is greater competition among employers for young staff, particularly if the population of working age is shrinking. There is no doubt that one of the main aims of the current shift in office design away from designated desks to more informal space with break out areas and cafes, is to attract and retain young, highly skilled staff.

Finally, demographic pressures can lead to the creation of new real estate types. In London the failure to build enough houses to keep pace with the growth in population and the resulting high level of house prices has led to the development of micro apartments and co-living schemes, where people share certain communal facilities (such as a kitchen). Furthermore, the growth in population and the decline in the average size of new homes has been one of the factors propelling the demand for self-storage as people run out of space at home to store those items which they use occasionally.

Real estate owners need to be innovative

As the populations of many nations and societies start to get older and even contract, there are actions that governments, employers, real estate owners and occupiers can take. Some of the more radical ideas for the government, such as the reform of pensions or residential ownership, could prove difficult to enact. By contrast, the actions required of employers and real estate owners should be less contentious. The challenge for them is to be forward-thinking and innovative in their search for solutions.


Life expectancy at birth increased by 2.6 years per decade between 1970 and 2015, United Nations, December 2017.

2 Half the world is older than the median age and half the world is younger.