Global built assets base grows to $217 trillion, generates 40% of GDP

04 January 2017 Consultancy.uk

The world's more than $217 trillion in built assets generated a return of around $36 trillion of in 2016, representing around 40% of global economic output. Developing nations, focused on manufacturing in particular, tend to have a more productive assets. The UK will see its return on built assets as a % of GDP decrease in the years to come, with more intangible assets becoming ever more important to economic output.

The global stock of built assets stood at around $217 trillion last year, following massive investments particularly in China – which totalled $12 trillion over three years. While some buildings have aesthetic value, the majority of construction has functionality in mind.

Average distribution of GDP

In a new report from Arcadis, the professional services firm explores in how far built assets are generating returns on investment. The report is based on data from 36 nations, which collectively represent 78% of global GDP.

The report finds that built assets will generate around $36 trillion of in 2016, an increase of $3 trillion on 2014. The total share of global GDP for the year thereby stands close to 40%, with labour generating close to 57%, while rent on resources generated the remaining 3.5%.  

Total built asset returns

The firm’s analysis finds that China generates the most returns from its stock of built assets, at $10.4 trillion, up 12% on 2014 when it generated $9.3 trillion from its built asset stock. The US takes second spot, generating $5.4 trillion, up slightly on 2014 when it generated $5.2 trillion. India takes the number three spot, generating $3.6 trillion, up 19% on 2014. Japan and Mexico round off the top five, at $1.9 trillion and $1.4 trillion respectively.

Germany is Europe’s largest player in the built asset environment, generating around $1 trillion from its built assets in 2016, up 3% on 2014. France generated almost $800 billion in 2016, while the UK comes in at number 11 on the list, generating $719 billion. Italy and Spain take the number 13 and 14 spots respectively, while Russia takes the number 15 spot.

The report notes that many emerging economies rank higher on the list than developed economies, largely because they tend to be manufacturing bases that pay relatively poorly – thereby a larger share of income tends to be generated by the built asset which lands in the pocket of capital owners. Developed economies tend to have a higher share of GDP generated from labour.

Return on built assets per capita versus stock of built assets per capita

The report also considered the per capita return on built assets against built asset wealth per capita. According to the firm’s analysis, those above the dotted line tend to be better at leveraging their assets to generate wealth – thereby improving the returns on the respective investment (although built assets can generate a host of non-GDP related benefits too).

Qatar is found to be the most efficient in generating returns on their built assets, reflecting the country’s success in moving away from hydrocarbons. Singapore takes the number two spot in terms of wealth, and number three spot in terms of returns – behind the UAE.

Most developed economies have considerable per capital asset wealth, however, the also tend to underutilise those assets for economic returns. The UK , Denmark and Sweden are in line with the US on the country’s ability to turn built assets into returns. Countries with considerable manufacturing bases, such as Mexico, China, Thailand and Malaysia, tend to generate higher returns on their built assets – even while having relatively low wealth per capita.

Return on built assets and return on built assets as % of GDP for the UK

The UK saw its return on built assets per capita dip following the global financial crisis, before peaking in 2015. The return on built assets as a % of GDP (RHS) has seen more considerable swings in recent years, from a peak in 2016 at almost 30%, to dip in 2010 at around 25%. In more recent years, RHS has trended upwards again.

The prediction for the future LHS shows an upwards trend, although RHS is likely to fall to around 24% by 2025 as the UK’s economy becomes increasingly focused on knowledge and intangible assets to generate GDP.  

Returns on built assets, 2016 and 2026 forecast

The firm’s analysis also considers the future development of returns on built assets. The biggest increases are likely to take place in China, whose economy is only slowing shifting towards services, and to keep growth high, continued investment in built assets is likely – total returns on new and old assets is to hit almost $18 trillion by 2026. The US too will see significant growth to its return on assets, increasing to around $7 trillion by 2026. India, whose middle class is growing rapidly, and where considerable infrastructure requirements – including smart cities – are on the cards, will see an almost doubling of its built asset stock to more than $8 trillion by 2026.

For most other countries, while growth is on the cards, that growth is likely to be relatively low. Focus will shift more towards developing sustainable assets as well as assets that better support knowledge-based GDP growth.

Julien Cayet, Global Business Advisory Leader at Arcadis remarks, “Governments and the private sector organisations around the world continue to invest in buildings and infrastructure to drive economic growth. This report seeks to quantify the combined value that these bring to national GDP. We can clearly see that many emerging nations are generating healthy returns from their new infrastructure, while developed nations are seeing a slowdown in its contribution as their economies diversify to service industries and their infrastructure ages."

She adds. "Both need to better understand how built assets can power more growth to their economies, especially in a world where funding challenges exist and the need for built assets that will stand the test of time are paramount.”

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