Societal trends are driving the real estate market to 'play catch up with demand'

As the first quarter of the 21st century draws to a close, societal and demographic trends are pushing real estate changes that are drastically changing property use and the changes are being driven at a pace far greater than expected.

Many predicted the trends in the long term; however, the real estate market is now being driven to change and is playing catch up with demand.

For example, the pandemic has accelerated the shift towards e-commerce and online shopping that was already underway.

These macro trends create compelling opportunities that thematic strategies can capitalise on by investing in property assets that are well positioned to benefit from the structural changes underlying the theme.

It is estimated that for every sale that happens online requires three times more warehousing space than in-store sales, fuelling growing tenant demand.

Knight Frank analysis shows that for every £1 billion of online sales requires approximately 1.36 million sq ft of additional warehouse space.

Knight Frank also predicts rising online retail sales across Europe’s top seven e-commerce markets will increase by 48% over the next five years, driving additional demand for last-mile logistics space.

This, in turn, continues to drive rental growth.

The need for data centres — which host the servers that house personal, corporate and government data —has also been rapidly increasing, fuelled by changing working habits during and after the pandemic and the growth of cloud computing.

Whether globally or regionally, internet networks are continuing to carry extremely high volumes of data and are witnessing sustained and strong levels of traffic growth.

In addition, the use of outsourced data centres enables corporations to optimise their IT budgets, allowing for focus on their core business activities and enabling greater flexibility.

Another strong trend involves investing in property types that cater to changing demographics, particularly the ageing population.

Properties that offer senior housing, nursing homes, or outpatient clinics such as GP surgeries are expected to see higher demand as the population ages.

The ONS data shows the population of England and Wales has continued to age and forecasts that there will be an increasing number of older people; the number of people aged 85 years and over was estimated to be 1.7 million in 2020 and this is projected to almost double to 3.1 million by 2045.

Healthcare assets have a more recession-resistant profile based on long-dated and index-linked leases and are supported by strong fundamentals and long-term trends, namely structural changes in demographics.

In addition, as cities become more crowded and average living spaces continue to shrink at pace, the need for additional storage has soared.

Self-storage property landlords globally have capitalised on this growth trend.

The pandemic has also resulted in lifestyle changes such as increased downsizing, divorces, and dislocations and self-storage has been increasingly acting as a necessary service people use as they navigate difficult life transitions.

More recently, there has also been a surge in business demand — such as e-commerce and other retailers — looking for secure urban storage options for their inventory, equipment, and documents.

The market is embracing the demand for usage change that has come out of the pandemic and a shift in societal demand.

The greatest demand is on the much larger shift in needs with infrastructure, the property eco-system will need to move as one to truly embrace the needs and demands society is creating.

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