By: Colin Dyer, President & CEO of JLL
Real estate investors are getting more aggressive.
As they move across borders searching for attractive returns, and as multinational corporations extend their footprints into new markets around the world, many are asking strategic questions about the dynamics of different cities. In recent years, we’ve seen a gradual shift in the mindsets of many of our investor clients: they’re recognizing cities as emerging political and business powerhouses.
Cities compete with one another for capital, corporations and talent. Their governments are increasingly recognizing the role of real estate as a contributor to – rather than a consequence of – city competitiveness. With more than half a trillion US dollars of commercial real estate traded each year across the globe, knowing which cities attract the most capital provides valuable insights into city success.
Reviewing the top 30 destinations for real estate capital over the past three years supports the traditional perspective: the global major business hubs are dominant, and the top 30 account for nearly half of all commercial real estate investment (with few notable exceptions – like Shanghai, Beijing and Moscow, which were added recently – they’ve been the same group of cities). At the top of the list are four “Super Cities:” London, New York, Tokyo and Paris, which are responsible for nearly 20 percent of commercial investment activity. They possess a powerful combination of economic scale and influence, deep corporate bases, highly liquid real estate investment markets and large, diverse and high-quality commercial real estate stocks.
No surprises here. But further investigation tells a more complex story.
What makes a city “intense?”
Scaling cities’ intensity – ranking cities and real estate investment by volume relative to the city’s economic size (rather than sheer volume alone) – dramatically changes the picture. This ‘Investment Intensity Index’ provides a useful barometer of a city’s health and real estate liquidity.
Measuring investment intensity, London maintains the top market position. You’ll need to look down the list for its fellow “Super Cities,” though: Paris is 12, and New York is 25, while Tokyo is well down the list at number 65.
Why the reshuffle?
The Rise of Vibrant, Tech-rich Cities
Mid-sized, vibrant and frequently tech-rich cities are punching above their weight on this measure. They include a number of European cities – such as Oslo, Munich, Stockholm and Copenhagen –scalable, tightly planned cities with a good quality of life that is attractive to corporate tenants. These factors are increasingly being incorporated into investment strategies.
Effects of Transparency
The transparency of a city’s real estate market offers another measure of investment attractiveness. We just issued the latest Global Real Estate Transparency Index, a survey that we undertake every two years to help clients assess the risks of transacting and operating in international markets.
Comparing city investment intensity with levels of real estate transparency reveals a remarkably good fit and highlights the importance that investors place on high transparency, with a combination of robust regulatory and legal frameworks, fair transaction processes and good quality market intelligence.
Transparent and liquid real estate markets, supported by a high quality commercial stock, can provide significant competitive advantage and are key indicators of successful cities.