A nuanced picture for real assets’ demand

Demographic trends throughout the eurozone, between member states and within nations, vary markedly. At the macro level, Europe’s working-age population is shrinking, which poses challenges to sustain economic growth, the labour force and productivity.

In Germany, the eurozone’s largest population and real assets investment market, the demographic trends are most similar to those of Japan. While Germany has previously experienced patches of negative population growth (eg, in the historic East German era), the Covid-19 pandemic was a true pivot point: its working-age population started to shrink in 2020 and its total population is projected to start falling this year. Germany’stertiary education cohort is also projected to start falling this year. By contrast, its retiree cohort is projected to continue to grow so that the working age population will fall to below 50% of the total population in 2031.

In France, Italy and the Netherlands, the same pattern also exists, but is worse. In all three markets, the working-age population had already begun to shrink in the 2010s. In Italy, the total population also began to shrink in 2018, although it is not projected to do so in France and the Netherlands until the 2040s. But before you get too optimistic, during the pandemic, France’s working-age population slipped below 50% of its total population.

Impact on real assets
Given the demographic picture, it is unsurprising that the eurozone economy is increasingly characterised by low trend GDP growth, low trend interest rates and low trend inflation. It seems positioned between the US, UK, and Australia on one hand and Japan on the other, with a clear direction of travel. From a demographic perspective, the eurozone is categorised by ageing populations and shrinking working-age populations, suggesting that a combination of sectors that has until now been successful in Japan would be attractive here as well: logistics and residential that service the major urban population centres that are expected to continue to attract young workers (eg, Berlin), and increasing opportunities in later living and
nursing care.