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Six Real Estate Predictions for 2020 and Beyond

by PwC AM on April 30, 2014

By Byron Carlock Jr., US Real Estate Practice Leader

On the heels of PwC’s extensive research into the biggest trends facing asset management by 2020, we adapted some specific implications for the real estate industry in a new publication entitled Real Estate 2020: Building the Future. In this report, we highlighted six key predictions:

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 specialize 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 behavioral change and political risk will be key. In order to prepare for these implications, the real estate investment organizations will need to make sure they have the right capabilities and qualities.

In all, the magnitude of expected change in investable real estate product within asset management allocations may not only grow our industry domestically, but may allow us to diversify the industry to a more global platform. In addition, infrastructure spending domestically and globally may increase development and acquisition opportunities as the markets respond to increased demand for urban product, new types of housing, improved distribution and  logistics and new focus on sustainability.  As such, the real estate community is likely to respond with increased allocations to the asset class, asset managers may become larger and the platforms will likely continue a global evolution.

 

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