Emerging cities attract global property investors

DAVOS (Switzerland): Over half of all real estate investments are centred in 30 cities, and a quarter of the total investments is in five top-tier cities — London, Tokyo, New York, Hong Kong and Paris, according to Jones Lang La Salle’s “A New World of Cities” report.

However, this is set to change by the turn of the decade with newer destinations such as Beijing, Shanghai, Moscow and Sao Paulo offering massive potential and becoming serious contenders for real estate dollars.

By 2020, said the report, there will be top 50 cities for real estate investments, an expansion from the current top 30. The expansion is driven by fast growing, emerging cities as investors widen their options to the newer destinations.

“We are already seeing a shift in where real estate investors are sending their capital,” said Peter Roberts, Jones Lang LaSalle’s CEO, Americas in a statement recently.

“The top 30 cities for real estate investment will become the top 50 as investors diversify their portfolios and corporate occupiers expand their geographic footprints to include emerging cities.

“While investors are still choosing to invest in strong, stable and transparent cities, new destinations offer a new world of potential,” said Christian Ulbrich, CEO, EMEA, Jones Lang LaSalle.

“As the world changes rapidly, the real estate investment map will follow suit. Corporations will continue to assess their business locations, search for more value and deepen their geographic reach. Investors will diversify their portfolios and begin to search for new cities for their investments in Asia-Pacific and second- or third-tier cities in the West,” he added.

The report stated that as digital communications enable corporations to locate outside traditional hubs, advances in digital communications are expected to contribute to this expansion because companies will no longer have to physically cluster in some of the world’s largest cities.

“In the BRIC (Brazil, Russia, India, China) countries, Grade A office stock is projected to grow by 10% per year over the next decade,” said Roberts. “Of these, China offers the greatest opportunity with the world’s 10 fastest growing new cities in terms of GDP. Chongqing, Tianjin and Chengdu top the list,” Ulbrich said.

London and Paris continue to rank among the top five cities for real estate investment while the five Asian cities that made the top 10 list last year are Tokyo, Hong Kong, Singapore, Seoul and Shanghai. “Back in 2004, Tokyo and Hong Kong were the only Asian cities in the Top 10 cities for real estate investment,” said Roberts.

Jones Lang LaSalle has also identified and defined 50 secondary and tertiary cities fuelled by an unprecedented programme of development and modernisation in China that will account for 12% of global economic growth in the next decade.

Although the spotlight of the report seems to be centred around the massive potential of emerging cities in Asia, the US is set to continue holding considerable real estate weight — the six fastest growing cities will be in the US — New York, Los Angeles, Chicago, Washington DC, Dallas and Houston. Meanwhile, three North American cities feature in the top 10 — New York, Washington DC and Toronto.

“Over the next decade, 16 of the top 20 fastest growing mature cities will be in North America,” said Roberts.  “Austin, Texas and Raleigh-Durham, North Carolina will be at the top of the list driven by technology, high-value activities and commitment to innovation.”

Nearly half of the world’s office stock is located in the US, and more than a third of all commercial real estate investment takes place in US cities. Eleven of those cities are expected to feature among the world’s top 30 largest cities by absolute GDP by 2020.

Despite the European economic turmoil, London has remained the top real estate investment pick with more than US$43 billion invested in 2010 and the first three quarters of 2011. The figure is a third higher than the world’s second most popular destination, Tokyo.

Europe’s other megacities include Paris, Moscow and Istanbul. “They are truly global and offer diverse industries and sectors. Other cities such as Munich and Stockholm offer strong real estate conditions and commitment to innovation, which will serve them well in a low-growth environment.” said Ulbrich.

This article appeared on the Property page, The Edge Financial Daily, February 3, 2012.

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