It took 2,000 years for the centre of economic gravity to move from the East to the West, says Commonwealth Bank’s Chief Economist Michael Blythe. Starting with Japan in the 1960s, it will only take 70 years to move back to the East.
Michael explains the move is driven by rising Asian incomes. By 2030 Asia will represent 66% of the world’s middle-class population and 59% of middle-class consumption, according to the OECD Development Centre. This is already creating a big lift in demand in Australia for services like education, healthcare and tourism, says Michael.
The population is not only getting bigger. It is also getting older. Today 14% of Australians are aged over 65. By 2050 25% of Australians will be aged over 65.
The Knowledge Economy
Bernard Salt, Demographic Consultant commented that these two demographic trends are already showing up in the composition of Australia’s workforce. Between February 2000 and February 2017 areas like healthcare and social assistance and professional, scientific and technology created the greatest number of jobs. In contrast jobs disappeared from manufacturing, agriculture, forestry and fishing, as well as wholesale trade.
“You need skills to share in the prosperity of modern day Australia,” Bernard says. “Knowledge workers live in Sydney and Melbourne,” he says, adding that is one reason why these cities’ economies are powering ahead.
Putting lifestyle first
Bernard also examined the changes in our consumption. Between 2007 and 2017 expenditure on pharmaceuticals, cosmetics and toiletries increased by 85%. Spending on takeaway food was up 70% and the amount we spend in cafes, restaurants and catering has grown almost 62%.
Over the same period sales in department stores only rose by 2.9% while spending on newspapers and books contracted by almost 20 percent and by almost 30 per cent in the five years to March 2017.
Shopping centres are already shifting towards lifestyle, food entertainment and leisure, comments Miranda Lie, Director, Real Estate at Commonwealth Bank. The growing trends of online shopping and the instant gratification and “want it now” attitude of younger generations, in particular millennials, is driving the need for super-efficient supply chains. In fact, shopping centres may help solve the last mile delivery challenge of online retail of getting goods from the store or warehouse to the customer. As cities densify, shopping centres could be redeveloped as sorting hubs with the expansion of delivery bays and cool rooms.
Australasia’s cosmopolitan cities
Bernard highlighted the surprisingly high proportion of international-born residents in Australasia’s cities. Sydney leads the way as 42% of its population was born outside of Australia. In Auckland 39% of residents came from another country. Only Toronto, where 49% of residents come from outside of Canada, and Dubai with its 83% of internationally-born residents, have a higher proportion of residents that were born outside its national borders.
This means the consumer markets in Australia are fundamentally changing and constantly evolving, says Bernard. “Will China’s tastes be picked up in Australia? It took decades for Australia to adopt Mediterranean tastes and their ideas about housing.”
Bernard expects the projected 5 billion extra people will lead to “a mad scramble for food, energy, water, resources, space, security and lifestyle”. Miranda explained that the future of Australia’s residential market is ripe for build-to-rent residential product, where multi-unit buildings are owned by a single entity. This is a well-established model in the US, Europe and the UK, but is virtually non-existent in Australia. Whilst not without its challenges, there are factors to support build-to-rent including structural shift towards lower home ownership largely driven by housing in-affordability and strong population growth, both natural and migrant including from markets where apartment living is the norm.
Learn more www.commbank.com.au/realestate
 John O’Callaghan, JOC Consulting, 16 May 2017