Research article

Total Assets Breakdown

Old world economics contain the highest share of global real estate value so potential for growth in emerging markets is significant.

The US, including Chicago, continues to dominate the global real estate market

▲ The US, including Chicago, continues to dominate the global real estate market

The value of the world’s real estate is unevenly distributed across the globe. Western nations contain the lion’s share of asset value, while less developed nations contain the least.

The dominance of real estate in Western economies is most noticeable in commercial markets, where nearly half of the total asset value resides in North America and over a quarter in Europe (see fig. 1). Asia and Australasia contain 22% of commercial asset value, leaving just 5% for South America, the Middle East and Africa.

Figure 1

FIGURE 1Global population v total high quality commercial real estate

Sources: Savills Research, Oxford Economics

Part of the reason that the US market is so big is because it is the most mature. The US market is much more transparent than many others and is therefore easier to measure well and in detail. Consequently, it is where data coverage is most comprehensive. This is assisted by the fact that it is also probably the most institutionalised market and therefore recorded and reported on by those entities. The US also contains more of the most valuable real estate in the world on a $ per sq ft/metre basis.

On the evidence of these regional real estate total values, the potential for the growth and development of investable commercial assets across the developing world would appear vast, but it is not necessarily the case that Western-style commercial property markets will develop in these new frontiers in the same way as they have in the west and parts of Asia.

Currently, many commercial premises in the less developed parts of the globe are informal, small-scale, flexible workspaces and shops. These have not been priced into overall asset value in this publication because they are traded in informal and opaque markets, often not recorded at a national, let alone international scale. Many workspaces and even retail spaces of this type are often mixed with residential property, either in buildings, blocks or neighbourhoods. The norm in nations which have not experienced widespread car ownership and suburban built environments is mixed-use and live-work space.

There is a real tension between two possible future built environment development scenarios in the nations which have not yet seen widespread, large-scale development in their cities. Recent development in China and other parts of Asia has shown that it is often easier, cheaper and faster to demolish existing structures to make way for large-scale developments. Improvements in infrastructure, land reclamation and investment in public transport lead to rising land values that exclude all but the large-scale and corporate players from participation. Landmark, world-class ‘trophy’ projects often involving named ‘starchitects’ are also beloved by politicians and planners alike, so they take priority over the smaller-scale integrated neighbourhood developments.

There is a big question mark, however, as to whether big-box, energy-hungry office blocks or retail malls will remain the universally preferred types of business accommodation in the 21st-century digital age and where the economy is developing along different lines to the late 20th-century Western experience.

Whatever the future development model adopted, the creation of new commercial real estate markets in Asia, Latin America, MENA and Africa is a potentially huge market. If the quantity and value of commercial space in these regions were to reach the current global average per head of population, the total value of commercial real estate globally would rise by 54%.

Residential real estate value is slightly more evenly distributed than commercial, broadly in line with the size of affluent populations (see fig. 2. China accounts for nearly a quarter of the total value, having nearly one-fifth of the world’s population. Having said this, the weight of value is still in the West: 21% of the world’s total residential asset value is in North America – despite the fact that only 5% of the population lives there. Europe contains 24% of residential assets by value but only houses 11% of the population.

Figure 2

FIGURE 2Global population v total residential value

Sources: Savills Research, Oxford Economics

The growth of residential real estate value in Asia illustrates the role of housing in developing economies. Its growth means there is now more collateral in the personal finance and small business sector of these countries. If African residential real estate markets were to develop in the same way over the next decade or two as the Asian markets (excluding China) have, this would add $5.8 trillion to the global total.

The global potential for economic development to impact on residential real estate is huge. A growing middle class and growing home ownership in areas of economic growth will increase the size of residential property as an asset class. If residential property in Middle Eastern, African and Asian countries were to move towards the global average per head of population, this would increase global residential asset values by 32% or $52 trillion.

There are big prizes for the super-opportunistic investor. While emerging economies will always be seen as high risk, the fundamentals of economic growth with strong demographics will undoubtedly increase demand for housing, workspace and retail/leisure space in population centres. This will create compelling opportunities for those able to deploy capital into the right types of real estate – the highest demand locations of the more stable nations.

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