United Kingdom | Population decline needn’t mean sub-par CRE returns

Our population projections for the UK now show it declining from the late 2030s, which will impact demand for real estate. As a result, we have trimmed our long-run forecast for the UK all-property return index by 0.7ppts by 2050. Falling population implies softer growth in potential output – we now expect that by 2050 the UK’s GDP will be around 1.5ppts lower than previously.

What you will learn:

• Over the same period the working-age population will shrink and total employment fall, which will cause a sustained structural reduction in the required stock for many real estate sectors. This is something we have not seen before in the UK.
• However, evidence from Japan suggests that a declining population doesn’t inevitably result in sub-par real estate returns. Japan’s all-property returns have averaged 5.7% annually in the 10 years since 2010 despite its population shrinking, although the macro-economic and monetary policy environment also need to be taken into account.
• We believe that major cities offer protection from the effects of a shrinking population and workforce. Major cities are still benefitting from urbanisation and agglomeration – for example Tokyo has recorded 0.4% pa population growth since 2010, relative to a decline of -0.1% pa nationally.