Property Search

What type of property are you looking for?
Residential
Commercial
How much is the world worth ?
Back
How much is the world worth ?

How much is the world worth ?

$228,000,000,000,000

This time last year we reported that global real estate values totalled 217 trillion US dollars.  Global asset price inflation has now increased this figure to US$228 trillion at constant prices - an increase of 5 percent in real terms.

Comparison with other assets

Global real estate is a more valuable asset class than all stocks, shares and securitised debt combined which together amount to a mere $170 trillion.  The value of all gold ever mined throughout history pales into even greater insignificance at $6.5 trillion.

Source: Savills World Research

Growth

World GDP (at constant prices) grew by 2.3% in 2015/16 so the world’s real estate asset values have grown faster than its income. This means that the world now owns real estate assets worth 2.8 times its annual income (GDP). This real estate asset-to-income ratio has increased from 2.7 in 2015.

Total commercial real estate value grew faster, at 7%, than residential (5%) over the year.  This asset price growth has been much faster than global bonds but slower than global equities which increased in value by 9% between the end of 2015 and the end of 2016.

We estimate that 16% of all investable residential real estate value in the MEA region is in the GCC countries – this is due residential values being far more related to population numbers than real estate investors who clearly favour the GCC to other Middle Eastern countries in today’s political climate.

As for commercial real estate, the biggest market is Saudi Arabia, which we estimate has 26% of the region’s value followed by the UAE at 14% (the same size market as Iran).

Source: Savills World Research

Residential dominates

Most of the value of world real estate is in residential property. It makes up three quarters of all real estate stock and by itself totals $168.5 trillion.  With around 2.05 billion households in the world, this means the average home is valued at around 82,000 US dollars but the value is concentrated in developed countries, chiefly in North America and Europe.

North America contains only 7% of the global population but 22% of all residential property assets by value.  Europe tells a similar story, containing 11% of the world’s peoples but 23% of residential property by value.

Source: Savills World Research

The greatest growth potential is in less developed economies.  Much of Asia has already seen real estate asset price growth as GDP per head has grown. But Africa appears to have the greatest potential yet for value growth as national economies and household incomes increase.  The Middle East & Africa region currently contains 19% of the world population but residential property on that continent is only worth 6% of the global total.

GCC countries represent 27% of all MENA residential and commercial real estate value, although only 13% of all MENA population. The UAE alone holds 10% of the real estate value and Saudi  Arabia 11%. Qatar, Kuwait, Bahrain and Oman have small total values by comparison to the rest of the region as populations are smaller.

David Godchaux, CEO of Core Savills, comments: “The heavy weight of the UAE’s total real estate value in the GCC and MENA reflects the remarkable growth and transformation of its economy, which is one of the most diversified in the region.”

Because most of the world’s households are homeowners, we estimate that only 34% of all world residential property is ‘investable’ that is, capable of being let to occupants and traded between investors.

Commercial, Agricultural and Forestry

The proportion of Commercial property that is investable is higher, at 67%, but even in this sector, there are a large number of individuals, companies and organisations that own and occupy their own buildings.

The greatest real estate asset price growth has been in the Commercial sector which stands 7% higher than it did last year.  Commercial real estate totals $32.3 trillion in value of which $21.8tn is classed as investable. We estimate that 58% of all investable Commercial real estate in the MEA region is in the GCC countries.

Agricultural land, farms, estates and forestry total $27.2 trillion - an increase of 5% on last year’s figure. Even in this sector, 30% operate and farm without third party investors owning the land.  In this sector, there is scope for more land to be brought into agricultural production in future, increasing the size of the asset class.  Much of this expansion will be through infrastructure projects in developing countries enabling produce to reach market. Once again, sub-Saharan Africa offers great potential for growth in this respect.

The role of real estate in the World

Real Estate is the World’s most important asset class and accounts for a significant proportion of personal and household wealth in developed economies.  Along with other assets like commodities equities and bonds, it has increased significantly in value since the global financial crisis of 2008, spurred on by the intervention of central banks and their suppression of gilt yields.  The income generating capabilities of real estate look attractive in many markets compared to local interest rates.

This shift of emphasis in the investing world to a search for income has arguably changed the status of real estate as an asset class.  Its qualities of being a tangible, real world asset capable of development, management and change has always put it in a special category in the investing universe and in the past  its illiquidity and ‘lumpiness’ have been seen by some investors as adding to risk.  We think the nature of real estate risk has changed in the new investing environment, giving its real world, income-producing characteristics a new value in the global hunt for long-term income.

Now that the threat of rising interest rates are placing downside risk on fixed income assets, the higher yields found in most global real estate markets provide an attractive ‘buffer’ between where bank base rates are now and where they may be in future.  We have found, for example, that most net effective yields in prime grade A offices in global gateway cities currently lie between 3% and 4%. Even if property yields do move out and threaten capital values, the extent that they move may prove to be less than the 250bp move expected in 30 yr US gilts, currently yielding 0.7%.

The prospects for rental growth are therefore increasingly of value to real estate investors in a way they may not have been in the past. With capital growth in real estate capable of being driven by rental growth as well as yield shift, there is a case to be made that global real estate is currently a lower, or at least different, risk than US treasuries.

Real estate and debt

It is estimated that total world debt (public, private, secured and unsecured) total US$205 trillion.  The value of all global real estate assets just about covers this liability and, if combined with public and private company values and other assets like cash and gold, means theoretically at least, global asset to debt cover is approximately 1.75.

In more practical terms, real estate is the asset upon which a large proportion of personal and household loans are secured.  We estimate that as much as half of this asset class globally may have loans associated with it though this varies greatly between countries and sectors.  It is notable, for example that in advanced Anglophone countries, which have been living with repayment mortgages for several decades, a large proportion of older residential property owners are mortgage-free.  In the UK for example, the real estate value owned by this group now exceeds the value of mortgaged owner occupiers.

We expect this trend of increasing housing equity will continue in countries that were early adopters of modern mortgage finance and will start to grow in Europe and some parts of Asia.  Meanwhile, for a large proportion of the globe, growing real estate asset prices will continue to be linked to growing populations and growing GDP which in turn impacts incomes and rent levels. These are the fundamentals of real estate asset growth[i] which may be accelerated or slowed by mortgage lending conditions.

Dubai residential property in its own world

David Godchaux, CEO of Core Savills, says: “In contrast with many other global cities, Dubai is at different stage of its real estate cycle. Unlike most other mature markets around the world, where residential property yields have steadily decreased since 2010, leaving little margin for short term capital appreciation, there still is significant room for yield compression in Dubai’s residential market, through rental decrease and price appreciation.”

He adds: “In Dubai, the significant demand for rentals that was witnessed prior to 2014 is not back yet.  Some tenants left the country for good, leaving a gap to fill the growing supply, while others shifted to home-ownership, adding upward pressure on prices, at the same time as downward pressure on rents.”

As per Core Savills’ Q1 Residential Market Update, the report states that: “We do not expect a recovery in rental levels in 2017 across most of the residential sub-markets. New employment figures for the current year are expected to determine the timing and amplitude of recovery. We foresee a potential increase in rents in 2018 as structural improvements in the employment market in the run up to Expo 2020 and an improved macro-economic environment, are anticipated to bring new occupier demand that is likely to feed the pool of renters rather than end-user buyers.

As the drop in rentals accelerates in the wake of slowly recovering sales prices, we have witnessed a mechanical compression in yield levels up to 100 base points across 15 of the 20 residential districts that we monitor. We expect further contraction in yields by the end of 2017 on the back of price recovery and continued softening in rentals.”



Source: Savills World Research