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Ageing population to impact German real estate, says Aviva

Germany’s population is changing dramatically and this could impact European real estate investing, says Aviva Investors.

Over the next 40 years Germany’s population is expected to fall by 12 per cent (10.2 million), while its working-age population is forecasted to fall by 27 per cent between now and 2050, driving a sharp rise in Germany’s dependency ratio.
For every 100 people of working age, there are currently 51 people of a non-working age and this is forecasted to reach 83 around 2050.
According to Aviva Investors’ analysis, there are big differences between states. Between now and 2025, Sachsen is set to shrink by 9.6 per cent whilst Hamburg’s population is expected to grow by seven per cent.
Darren Sriharan, research analyst at Aviva Investors, says: “At a state level there seems to be an East-West divide. With the exception of Berlin, forecasts suggest that over the coming decade, the East of Germany will see a greater fall in total population and working age population and a steeper increase in the dependency ratio. The rate of change is less dramatic but still evident in western and southern states.”
Demographic changes can have a major impact upon real estate. Reflecting changes in consumption, requirements and habits, the need for certain types of real estate rises and falls as people age.
With the German non-working age population set to increase, Aviva Investors predicts there will be a shift in demand for different types of real estate:
Healthcare – greater infrastructure required to care for an aging population: The expected rise in the number of older people over the long term will present investment opportunities in the healthcare sector, including hospitals, nursing homes and other medical facilities.
Retail – sector will have to reposition for a different client base: Retailers and retail locations that rely upon young fashion to drive high levels of sales will suffer from the declining youth population. Older households tend to spend less of their consumption budget on clothing compared to the average German household and therefore the outlook for the non-food retail and brands sector look weak in Germany as a whole.  This trend however, creates an opportunity for shopping centres to capture an older spend by adapting communal areas and readjusting their tenant mixes.
Housing – increasing demand for smaller housing units: Research from the Federal Statistical Office shows that the proportion of people living alone increases with age. Given that the number of people over the age of 85 is expected to increase by 43 per cent between now and 2030, there is likely to be greater demand for smaller residential properties.
Offices – fewer people of working age implies less demand for traditional office space: With the working-age population in Germany set to see a fall of 14.8 million by 2050, the labour supply is likely to tighten and demand for workspace will fall. While not in all locations, demographic trends present particularly large downside risks to this part of the real estate market, and downward pressure on rental levels is likely to be widespread.
Student accommodation – fewer people going to university: According to the OECD Better Life Index the average age for German graduates is around 28. Demand for student accommodation is therefore likely to be much weaker if the 20-34 age cohort falls by 15 per cent by 2025, as is forecast. With the majority of students living in private rented apartments rather than student halls, this will also impact on residential assets in university towns.
Sriharan says: “With significant demographic variations likely at a local level, German real estate investing more than ever requires a local approach and knowledge. The rapid rate of demographic change will create new opportunities while undermining the viability of some traditional strategies. To succeed, investors need to be prepared to adjust portfolio exposures, alter existing real estate assets and identify opportunities for new real estate investments.”

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