How does an aging population impact real estate

Globally, life expectancy is increasing, creating a growing demographic of senior citizens (those aged 65 and over). At the same time, working age populations (those aged between 15 and 64) are stalling in some countries, and even expected to decrease.

As people live longer and the working population gets smaller, real estate demands are likely to shift significantly. Understanding how an aging population will affect demand for buildings and services is crucial to future proof real estate portfolios.

What's changing?

The global population has increased 26% since 2000¹. This trend is playing out in three ways:

• Life expectancy is increasing. The World Health Organization reported average life expectancy grew from 66.8 years in 2000, to 73.1 years in 2019. As a result, the senior population as a proportion of total population is growing in many countries. In Japan, for example, its senior citizens are projected to represent around 25% of the national population by 2065¹
• In some regions, an increasing senior age demographic is coinciding with declining fertility rates. In Europe, China and Japan, working age demographics will begin to fall in absolute terms over the next 20 years¹
• Some countries are seeing population growth across all demographics. India's projected population overtook China in 2022, making it the most populous country in the world. African nations are also on course to see populations increase, with high birth rates over the last 20 years¹. The African continent will likely have the largest working age population in the future

The shifting trends in the global population are materializing in different ways, and the impact on different regions will be varied. However, in regions where a senior demographic is expected to overtake the working age population, real estate demands could well shift radically.

What does an aging population do to real estate investments?

A growing population of 65 and over will change demand for real estate. Nuveen Real Estate has identified three key areas for investments: supplying dedicated care facilities; refurbishment opportunities for senior care in urban cities; and tapping into increased demand for alternative real estate sectors.

Keeping up with demand

Targeting the development of care facilities could be an attractive space for real estate investors as demand currently outstrips supply.

There are already indicators of a supply and demand imbalance for senior care. In the U.K., estate agent Savills² noted that 14,400 new care home beds will be needed annually over the next 10 years. It took suppliers three years (2020-2023) to meet that annual target, while only 5,900 beds were under construction in late 2023.

Canada has similar supply concerns. Deloitte³ estimates demand for care home beds will rise by 59% by 2031 compared to 2019 levels, which is likely to create shortages within the care sector.

An undersupply of specialty care equipment such as beds could prove to be an early warning of an increased demand for care home facilities in the coming decades.

Japan underlines this concern. As stated above, the senior population is expected to account for around 25% of the national population by 2065. Care home supply is expected to fall well short of the estimated 8 million increase in senior population in this period.⁴

To meet this growing demand in Japan and countries in a similar position will require investment from the private sector.

Revamping real estate

In countries where the working age demographic is falling, such as the U.K., China and Japan, opportunities to refurbish assets to support an increased senior population are likely to come into scope.

Demand for office space could fall with a stagnating and declining working age population. Under-used buildings could be revamped to support, for example, inpatient and outpatient senior care.

The U.K. has already showed signs of the office refurbishment trend. The normalization of working-from-home has meant the demand for office space has declined. In 2023, a little over 20% of real estate deals focused on the hospitality industry (which totaled £2.4 billion) were office-to-hotel conversions.⁵

If the demand for office space and similar employment-focused real estate were to decline in line with a falling working age demographic, developers may well look at these properties as development opportunities to meet growing demands from sectors such as hospitality, residential and senior care. These locations would also provide seniors with an ease of access to groceries, health care facilities and transport.

Beyond residential

As further investment is made into senior residential housing, the health care sector, particularly medical offices, may also face heightened demand in future.

In the U.S., over 65s spend on average three times more on health care than the population aged 19 to 44 years (Figure 2). This age cohort is projected to grow three times faster than the general population between 2024 and 2040 and is set to represent 22% of the population by 2040. At present, medical office is currently 93% occupied and stands to benefit greatly from this demographic tailwind.⁶

The U.S. also benefits from a shift away from hospital care to outpatient facilities, which are often more convenient and less expensive. Since 1995, hospital admissions declined by 21% while outpatient visits increased by 52%⁷. Combined with a dwindling pipeline, this should push occupancy close to its structural limits, presenting substantial opportunities for acquisitions and development of modern medical outpatient facilities. And these opportunities are not confined to the U.S.

Aging population driving opportunities

The commercial real estate market will change significantly in the face of an increasing senior population. Development to address senior care needs cannot depend simply on new construction projects. Refurbishing existing properties - for example, office buildings in cities with a dwindling workforce - will provide an avenue for developers to address the growing yet varied demands of senior care.

As with other megatrends, such as urbanization and the transition to a low carbon economy, adapting real estate needs for the aging population will require private sector investment, making the senior demographic an increasingly important investment opportunity for real estate.

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