Generation Y HOW POPULATION CHANGE WILL IMPACT2011-11-23 16:31:33

Generation Y

HOW POPULATION CHANGE WILL IMPACT OFFICE SPACE DEMAND

In our introductory report on the subject of Generation Y and the subsequent impact on real estate markets, we touched on the extent to which this group of individuals is altering the employment landscape and thus the demand for workspace.

This second report examines the fundamental context behind these trends, looking at historic and forecast population change in Europe and the likely impact on headline demand for office space.

As Europe faces the prospect of a declining and ageing population, we will see a significant impact on the economy with concerns over the proliferation of public sector services in their current form and the overall stability of the pensions industry.

There will also be an impact on the real estate sector in terms of: • How much space will be required? • What type of space to build and when? • Which markets will be effected?

HOW MUCH SPACE WILL BE REQUIRED?

There is little need to embellish upon the stark fact that Europe is witnessing a population which is set to decline and age further over the next 40 years.

People are living longer, marrying/partnering later and starting families later in life and having fewer children – the result of economic and social change.

Unless there is a marked change in the way we live, combined with an increase in immigration to the continent and a significant rise in the birth rate, which is highly unlikely, this is a largely irreversible trend.

A quick look at the population profiles of Europe from 1950, 2010 and 2050 highlights this shrinking and ageing process markedly. From 1950 to 2010 Europe’s population has grown in size, aged and boosted the size of the working population quite significantly (i.e. those aged 15-64).

If we look further forward, however, we can start to see the negative impact of a declining birth rate and improving mortality rate.

The recently adjusted population projections for 2030 and 2050 by the UN determine that there will be 45 million less 20-40 year-olds in the workplace by 2030 from today.

Conversely, there will be an additional 45 million 65+ year olds drawing a pension provided the retirement age remains at 65 years old (on average), although it seems more than likely to increase by at least two to three years.

Sandwiched in the middle, the 40-65 year olds, are set to remain almost constant at around 255 million persons over this 20 year period.

In terms of impact, a declining working population forecast creates a base case scenario of a 10% reduction in demand for commercial (office and industrial) space across Europe over the next 20 years. This will be followed by a further 10% diminution over the subsequent 20 years to 2050.

At present, it is impossible to determine exactly how much of a reduction in demand this will equate to for offices versus production and manufacturing space. There are other factors including the role of technology, expanding the use of computing and/or automation to fulfil many manufacturing/production jobs which may not always result in a requirement for less space.

Equally, the adaption of ‘Alternative Working Strategies’ (AWS) will alter the proportion of remote versus office-based jobs in the workforce. All of which will be explored in greater detail in Paper III in the series.

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