By Paul Tostevin, Director, Savills World Research.
The value of all real estate worldwide reached $ 326.5 trillion in 2020, a 5% increase from 2019 levels and a record high. Growth was driven by residential, which is by far the largest real estate sector, accounting for 79% of the total global real estate value. It saw its value increase by 8% over the year, to some $ 258.5 trillion.
The world’s largest store of wealth, real estate is worth more than all the world’s stocks and debt combined, and almost four times that of global GDP. The value of all gold ever mined pales by comparison to $ 12.1 trillion, at just 4% of global property value.
Residential real estate
China, home to 1.4 billion people, is the world’s most valuable residential market and now accounts for 30% of total global residential value. The total residential value here increased 13% in 2020, driven by strong price growth coupled with the delivery of new offerings.
The United States follows, accounting for 11% of global residential value, while just ten countries – China, United States, Japan, Germany, United Kingdom, France, South Korea, Canada, Italy and Australia – account for 75%. of the global residential total.
Regionally, significant residential wealth is concentrated in Europe and North America, accounting for 43% of the combined value, while it is home to only 17% of the world’s population.
Commercial real estate
The total value of global commercial real estate fell 5% in 2020, to $ 32.6 trillion, at a time when global economic output contracted by more than 3%.
However, that fall was only “on paper” as commercial property owners held their own during the first wave of the pandemic, and best-in-class assets continued to trade at sustained values.
The United States is the world’s largest commercial real estate market, accounting for 27% of the global value of commercial real estate. It is followed by China at 16% and Japan at 6%, together accounting for just under half of the total value of commercial properties.
Supported by renewed global economic growth, our forecast indicates that commercial real estate will once again reach new highs by the end of this year, with 5% value growth expected in 2021. This will reverse the falls of 2020 and will bring the total commercial value to $ 34.3. billion by the end of 2021, a new peak.
Valued at $ 35.4 trillion, farmland is now worth more than all commercial real estate, after a period of exceptional growth in the years following the global financial crisis.
The total value fell by 7% in 2020, however, due to falling land prices in South America, where political unrest and the wider impact of the pandemic have taken their toll.
How is the performance compared to other asset classes?
The growth in the value of global real estate, at 5% in 2020, was lower than the total value of securitized debt (+ 17%), equities (+ 20%), or gold (+29 %).
But capital growth only tells part of the story. Real estate has established itself in the search for income for global investors in an environment of low interest rates. The government’s stimulus measures in the wake of the pandemic mean that there is a lot of capital in general and real estate is seen as a safe store for it. All of this means more money in pursuit of capital appreciation and, most importantly, income.
Article originally published on Savills with permission for republication granted to Property Wheel.