Savills research states that less than 3% of global pension fund assets are held in land and property and while low this still equates to $44 trillion. Some countries invest more than others, ranging from Finland at 11% to the likes of the US at just 0.7%.

According to Savills, the population of retirees globally is forecast to grow from 1.5 billion to 2.1 billion in 2050 and the deficit between retirees’ needs and pension provision is growing by $28bn every 24 hours. By 2050 the deficit is set to be five times the size of the global economy and the threat of this enormous financial burden is signalling a ‘tipping point’ that is firing up demand for long-term secure income streams, with real estate seen as a good annuity match.

Savills has examined the key trends set to determine future global real estate investment activity in a series of articles and interviews launched today as part of its Impacts research programme, where the international real estate advisor studies the various social, environmental, demographic and technological ‘tipping points’ immediately facing global real estate.      

Key points: 

• The World Economic Forum (WEF) is warning of a $400 trillion global pension time bomb by 2050, signalling a financial crisis equivalent to climate change, as the average global life expectancy at birth is now estimated at 72.6 years, the highest ever
• Demand for long-term secure income streams is firing up appetite for ‘diverse’ real estate assets such as multifamily and senior housing and, increasingly, logistics and data centres
• Savills research states that less than 3% of global pension fund assets are held in land and property, equating to $44 trillion. Some countries invest more than others, ranging from Finland at 11% to the likes of the US at just 0.7%. 

Mat Oakley, Head of Research, Savills EMEA, comments:  “Pension funds have always been significant investors in land and property, and rising needs for more pension provision will mean that more pension and annuity fund money will be targeted at the sector. The challenge however for these global pension fund investors over the next decade is going to be the scarcity of these long income opportunities.”

Savills highlights that disruption within the traditional retail and office sector has driven a decline in the average lease length attached to a typical property investment, which means that the largest and most liquid parts of the market will no longer offer the level of annuity matching that they used to.

According to Paul Craig, CEO, Savills Australia and New Zealand, the demand from domestic Pension Funds for real estate will continue to be complimented by the sustained mandate of the International Pension Funds to satisfy market allocations.

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“Mid to long term, Australian real estate with its the high quality and sophistication of the fund management sector, along with its transparency is an ideal destination for both domestic and international pension funds."

“We will continue to see a focus on high quality, long term investments, underpinned by real estate equity and debt investments. And, as we have seen in other markets, the shift to other sectors, (such as student accommodation, residential etc.), given the sheer volume of capital seeking a home in Real Estate from multiple sources and locations is certain to emerge” he said.

Over recent years capital allocations have increased into the residential sector, namely multifamily and senior housing, which are driven by global demographic factors rather than the cyclical health of the economy and the recent effects of Covid-19.  It is this long-term appeal that is of greatest value to global pension funds, and it will continue to drive demand for such assets. Savills research confirms that institutional investment into residential asset classes has grown by almost 50% in the last five years, and it shows no sign of abating.

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Paul Tostevin, Director, Savills World Research, says: “Demographic trends such as ageing, urbanisation and shrinking households are likely to be immune to the effects of Covid-19 long term and will only strengthen investor appetite for this sector. However, with long-term low interest rates ensuring that real estate remains in demand as an asset class, the low availability of high-quality stock means that competition for these operational assets is likely to be fierce.”

Mat Oakley adds, “Rising demand for longer-income assets will, I believe, meet a falling supply and a rise in prices. This means it will not only be senior housing that benefits from an ageing population, but segments as diverse as pubs, logistics, data centres and offices.”

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