UK insurer on real estate implications of shrinking German population

It is widely known that Germany’s population is shrinking, as the Germans have too few children and the population ages. Current rates of immigration are not enough to sustain the population, and even at higher rates of net population inflow, the country is likely to face a fall in population by nearly 10.2m or 12% over the coming 40 years.

Now UK-based insurance company and property manager Aviva Investors has issued a new study on the real estate implications in Europe’s largest country as it faces up to its demographic shrinkage.

The Aviva researchers point to how Germany‘s working-age population is forecast to fall by 27% through 2050, driving a sharp rise in Germany’s dependency ratio. For every 100 people of working age, the 51 people of non-working age is forecast to reach 83.

Not all of Germany’s sixteen federal states are faced with the same demographic dilemma – with wide variations depending on region. For example, by 2025 the eastern German state of Saxony is set to shrink by 9.6% while Hamburg’s population is expected to grow by 7% for instance.

According to Darren Sriharan, a researcher at Aviva, “At a state level there seems to be an East-West divide... With the exception of Berlin, the eastern states in Germany will see a greater fall in total population and working age population and a steeper increase in the dependency ratio. The rate of change is less dramatic but still evident in western and southern states.”

Demographic changes can have a major impact upon real estate. Reflecting changes in consumption, requirements and habits, the need for certain types of real estate rises and falls as people age. With the German non-working age population set to increase, Aviva Investors predicts there will be a shift in demand for different types of real estate.

Not unsurprisingly, healthcare property will benefit from greater infrastructure required to care for an aging population. „The expected rise in the number of older people over the long term will present investment opportunities in the healthcare sector, including hospitals, nursing homes and other medical facilities,“ it said.

In retail, the sector will have to reposition for a different client base. “Retailers and retail locations that rely upon young fashion to drive high levels of sales will suffer from the declining youth population. Older households tend to spend less of their consumption budget on clothing ...and therefore the outlook for the non-food retail and brands sector look weak... This trend however creates an opportunity for shopping centres to capture an older spend by adapting communal areas and readjusting their tenant mixes.“

In housing, rising demand for smaller units means a greater demand for smaller residential properties. In office, fewer people of working age implies less demand for space. With the working-age population in Germany set to fall by 14.8m by 2050, the labour supply is likely to tighten and demand will fall.