Looking forward to 2020 and beyond, the real estate investment industry will find
itself at the center of rapid economic and social change, which is transforming the
built environment. While most of these trends are already evident, there’s a natural
tendency to underestimate their implications over the next six years and beyond.
By 2020, real estate managers will have a broader range of opportunities,
with greater risks and new value drivers. As real estate is a business with long
development cycles – from planning to construction takes several years – now is the
time to plan for these changes.
Already, thousands of people migrate from country to city across Asia, the Middle
East, Latin America, and Africa on a daily basis, attracted by the new wealth of these
economies. By 2020, this migration will be firmly established. The cities will swell
– and some entirely new ones will spring up. Meanwhile, the growing emerging
markets’ middle class and aging global population are increasing demand for
specific types of real estate. Subsectors such as agriculture, education, healthcare,
and retirement will be far bigger by 2020.

High energy prices, climate change
and government regulation are already
pushing sustainability up the real estate
agenda, but by 2020, their impact will
be far greater. Technology is already
disrupting real estate economics, but
by 2020, it will have reshaped entire
sectors. And the real estate community
will have taken a greater role in the
financial ecosystem, in part, moving into
the space left by banks.
Our fictional forum illustrates some
elements of this change. We believe the
a new era of real estate investment, to
2020 and beyond, is the beginning of a
time of unprecedented opportunity for
real estate investors and asset managers,
although with greater risk. The global
stock of institutional-grade real estate
will expand by more than 55% from
US$29.0 trillion in 2012, to US$45.3
trillion in 2020, according to our
calculations. It may then grow further to
US$69.0 trillion in 2030 (see page 7 for
explanation of methodology). This huge
expansion in investable real estate will
be greatest in the emerging economies,
where economic development will lead
to better tenant quality and, in some
countries, clearer property rights. And it
will play out across housing, commercial
real estate and infrastructure. Indeed,
as intense competition continues to
compress investment yields for core real
estate, real estate managers will have
every incentive to search for higher
yields elsewhere.
On the next page, we highlight our six
predictions about what this means for
real estate managers and the investment
community. After that, we describe our
view about the likely changes in the
landscape, their possible implications
and how we believe you should prepare
for this fast-changing world
Six predictions for 2020 and beyond – in brief:
The changing real estate landscape will have substantial implications for the
real estate investment community, which we highlight below and describe in
more detail in Part Three: Implications for real estate strategies.
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, the 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 of
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
quaForecast methodology notes
The forecast for the value of institutional-grade real estate assets is based
on a model that utilises economic activity as measured by GDP, based on
2011 Purchasing Power Parity and the observation that in a fully developed
economy, institutional-grade real estate represents about 45% of GDP.1
In
developing economies, the amount of institutional real estate is adjusted
downward from the 45% base. The classification developed vs. developing
the economy is accomplished using a ratio of GDP per capita in the country to a
the predetermined threshold for each year. The rationale for this adjustment is
that in developing economies, a less institutional real estate is required to meet
the needs of the economy and the quality of a majority of tenants would not
satisfy the criteria of RE institutional investors. Although the forecast has not
been adjusted for properties’ obsolescence, this factor can be noted from the
absolute projections for construction, and therefore to be considered by the
investment community.lities.

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