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Long-term trends boosting listed real estate

Long-term trends boosting listed real estate

Reporter
— 1 minute read

Global listed real estate looks set to continue enjoying a “favourable outlook”, with three promising areas of growth, says AMP Capital.

According to a note written by AMP Capital head of global listed real estate James Maydew, three areas earmarked to “perform particularly well” this year are data centres, e-commerce and demographics.

“Firstly, the proliferation and dependency of data globally is driving the internet ecosystem of the cloud to new levels of mainstream adoption,” Mr Maydew wrote.

Millennials, “the largest living generation” that was now a major driving force behind the economy, were also one of the heaviest consumers of “data-heavy content” on media platforms such as Netflix, YouTube, Instagram and Snapchat.

But all this data needed to be stored somewhere easily accessible to consumers "with minimal latency", according to Mr Maydew.

“That’s where data centres play a vital role in connecting the global population to the internet and charging rent and connection fees for the privilege,” he said.

“Between 2015 and 2020, it is anticipated that global data centre workloads will increase by 27 per cent CAGR and this will continue to drive demand for the real estate and infrastructure that house the network.

“As landlords to the internet and the cloud, data centres are well positioned to continue to capitalise and deliver outsized growth.”

Furthermore, e-commerce giants such as Amazon and Alibaba are disrupting the retail world, and real estate markets could benefit from this trend.

“Logistics facilities have been nicknamed ‘cheap malls’ in certain real estate circles as they are now a vital cog in any e-commerce transaction and play the same role that malls have always done via storage and access to goods for sale,” Mr Maydew wrote.

“It’s occurring at a point in time where industrial floor space supply has been shrinking due to the conversion of land to ‘better and higher use’ real estate such as residential.

“This is causing an inflexion point in the logistics market, squeezing rents, capital values and occupancy to all-time highs.”

Finally, the reality of ageing Baby Boomers means that shifts in demographics entailed more capital being allocated to goods, services and healthcare.

“Demographics drive everything and we have an impending aging population crisis on the horizon in many Western countries as this massive cohort stops accessing credit, spending on consumption and begin drawing down on it through retirement,” Mr Maydew wrote.

In the US, Mr Maydew explained, those aged 65 years or over went to the doctor seven times a year on average, which would cost nearly $10,000, while someone under 45 would only spend $2,700 on 2.3 visits a year.

“Given the population of over-65-year-olds is projected to grow 100 per cent between 2010 and 2050, this will create huge pressure on existing healthcare infrastructure and is a massive tailwind for real estate owners that offer high quality health care facilities that match this demand such as medical office buildings,” he concluded.

 

Long-term trends boosting listed real estate
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