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Declining births guiding real estate development, investment worldwide

While the future of real estate development and investment is problematic in many places around the world, prospects may be better in the United States -- but only where the population continues to grow through births or immigration, according to a national real estate consultant.

M. Leanne Lachman, who also serves as an executive-in-residence at Columbia University’s Graduate Business School, was one of the speakers at the Burnham-Moores Center’s Second Annual Women in Real Estate Conference at the University of San Diego.

Along with Europe, Lachman said countries such as Japan, South Korea and Russia and some parts of the United States may not be suitable for real estate investment, because the populations are declining or stagnant.

Regardless of where the growth will be, Lachman emphasized that for all intents and purposes, it will be in areas which are already urbanized.

“All the population growth will be driven in the cities,” she added.

Lachman said that in most countries where women are a part of the workforce, “You will see a decline in birthrates.”

China may have a one-child policy keeping the birth rate low, but with millions of people moving into cities such as Peking, Hong Kong and Shanghai from rural areas every year, Lachman said the metropolitan areas will continue to see the demand for housing and more commercial space.

“Even very poor families (in China) are experiencing a growth in income,” she said, adding that new residents and workers are fostering growth and businesses, and employees are helping to fuel demand for discount warehouses such as Costco (Nasdaq: COST) in the country.

In those cities that see the population growth, Lachman said there will be a wide demand for new development including supermarkets, hotels, warehouses, water and airport facilities, retail malls, workforce housing, middle-class condominiums, office buildings and some sort of mortgage finance vehicles.

China is not alone: both India and Nigeria have experienced explosive population growth that she said will fuel residential and commercial development.

“The fastest-growing regions are Africa, the Middle East, Southeast Asia and South Central Asia,” Lachman said.

Europe -- which already has difficulties due to the fiscal woes of such countries as Greece and Spain -- has another problem, according to Lachman: not enough children are being born there to justify new real estate development.

But there is an exception, with “a strong nursing home need throughout Europe,” she said.

Lachman said a surprising fact is that despite Mexico’s reputation for rapid population growth, its births per person are projected to decline from 3.63 in 1985-1990 to 2.23 in 2010-2015 and a projected 1.7 births by 2045-2050.

That dynamic, she added, translates into less demand for housing and commercial space, unless sufficient workers from the more rural parts of Mexico flood such cities as Mexico City and Guadalajara to counteract any decline in the birth rate.

Lachman said as of 2010, about 77.8 percent of Mexico’s population live in cities -- versus 84.3 percent for Brazil, 75 percent for Colombia and 82.1 percent for the U.S.

The U.S. stood at about 1.89 births per person in 1985-1990. A 2.08 average is projected for the period of 2010-2015 and a 2.09 rate is projected in 2045-2050.

In Brazil, Lachman said women are postponing becoming mothers due to the need for two incomes in urbanized areas that tend to be more expensive.

Here again, that lessens demand for housing and other services unless the 15.7 percent of people who live in rural areas are drawn to cities.

In the meantime, birth control and other factors are putting a downward pressure on growth in Brazil.

Lachman said that even the Brazilian and Mexican soap operas (“telenovelas”) portray small, middle-class families, as opposed to the larger ones that were prevalent before.

Lachman didn’t break out the U.S. by region, but said as long as the nation is adding about 1.2 million households through births and inmigration annually, there will be plenty of opportunities for future residential and commercial growth.

“That’s lots of demand going forward,” Lachman said.

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