How city characteristics influence real estate investment

 —  Article by Rhian Nicholson

Even in today’s ever globalizing world, no two cities are the same.

Some nevertheless share similar traits and face similar challenges, often depending on where they are in their on the evolution curve, their economic size, the specialisms they nurture and the role they play on the global stage, creating peer groups made up of cities scattered far and wide around the world.

These characteristics defining each group cover many of the big issues facing modern growing cities such as housing affordability, improvements to infrastructure, environmental impact and the use of technology. In addition, factors such as a city’s adaptability, its resilience and its capacity to deliver transformational projects have a role to play. All of these in turn, have a big impact on how real estate investors and businesses perceive a city and its future prospects.

Jeremy Kelly, Director of Global Research programmes at JLL says: “It no longer makes sense to see all cities as being in competition with one another. Instead, cities are finding many different routes to success, creating value along their way that offers an attractive mix of risk and return profiles for investors.

“As locational choices multiply for investors and corporates, it makes greater sense to assess relative economic prospects and real estate market dynamics through the lens of additional city groups that further break down Established World Cities, New World Cities and Emerging World Cities.”

View the slideshow below the find out more about the peer groups of today’s top cities and what it means for their commercial real estate markets.

Street sign of Fifth Ave and West 33rd St at sunset in New York City
Global leaders

Hugely powerful and globally-connected, the Big Seven are the elite group of cities consisting of London and Paris in Europe, New York in the US and Tokyo, Singapore, Hong Kong and Seoul in Asia. Together, they account for around one-quarter of all capital invested in commercial real estate and have registered the strongest growth in prime office rents since 2000, but they are also among the most cyclical markets. London and New York are the outright leaders, accounting for 11 percent of all global real estate investment. Yet Tokyo and Paris are strengthening their position with ambitious infrastructure programmes ahead of hosting major sporting events.
Street sign of Fifth Ave and West 33rd St at sunset in New York City
Shanghai skyline on summer day
The chasing pack

Snapping at the heels of the elite group, the Contenders are a geographically diverse group of cities which have collectively recorded the fastest growth in real estate investment over the past decade. Office rental growth has soared since 2000, second only to the ‘Big Seven’. Shanghai is at the front of the pack with investment volumes increasing tenfold since 2006 while Los Angeles is chasing down the global leaders after moving to second place among the most active investment markets in the world in 2017. In Europe, Amsterdam has caught the eye of investors; investment volumes doubled during 2017 and occupier take-up is currently growing at the fastest rate in the region.
Shanghai skyline on summer day
Stockholm underground station
Focus on innovation

Smaller in size and scope than the global leaders yet with world-class capabilities in science and technology along with business climates that foster innovation and entrepreneurship, the Innovators have a key role to play in global networks of goods, services and knowledge. This group of cities, which includes the likes of Seattle, Austin and Silicon Valley in the U.S. and Dublin, Stockholm and Berlin in Europe, are among those attracting the greatest volume of real estate investment relative to their economic size. Boston comes top of the pile as a real estate investment destination. However, these cities also come with downsides; affordability is a rising concern while many are struggling with space constraints, which in turn are putting restrictions on building the housing, infrastructure and creating the urban lifestyle that would help to boost their position further among global cities.
Stockholm underground station
View from the Wynyard Quarter in Auckland,

An enviable lifestyle

Boasting a high quality of life and a strong global appeal, the Lifestyle cities tend to be high-income, mid-sized cities in mature European, North American and Australasian economies with lower levels of social, environmental and economic concerns such as crime, pollution congestion and inequality. As such, they’re places that people, investors and businesses want to be; the likes of Auckland in New Zealand, Helsinki in Finland and Vancouver in Canada have registered strong rental growth for prime offices since 2000. However, their attractive natural surroundings can also lead to limitations in future growth and create challenges in identifying larger sites for development.

View from the Wynyard Quarter in Auckland,
Broken Chair, Square of Nations, Geneva
Using their influence

Home to transnational institutions or globally recognized tourism hubs, the Influencers have some of the world’s most stable real estate markets. Cities like Geneva in Switzerland, Frankfurt in Germany and Kyoto in Japan have registered the lowest volatility in office rents since 2000 among all 10 of the city ‘groups’. Yet with power comes responsibility and these cities need to show their real estate transparency matches their reputation for governance on the international stage. They also need to add more of a competitive edge to help draw in higher levels of real estate investment.
Broken Chair, Square of Nations, Geneva
View of the skyline of Makati at sunset, in Metro Manila,
Size matters

From Moscow to Mumbai to Mexico City, the Megahubs are exceptionally large cities in emerging economies that have become centers of business services and retail, with many building multiple Central Business Districts to better organize activity across a mix of locations. All have key roles to play in their domestic markets and many are of growing prominence on the international stage, attracting high levels of corporate demand. However, their vast scale and weaker levels of transparency are acting as a drag on investment.
View of the skyline of Makati at sunset, in Metro Manila,
Cityscape of Shenzhen
An enterprising mindset

Carving out a reputation for being among the world’s most dynamic real estate markets, the Enterprisers are all about high levels of productivity and innovation with a focus on services rather than manufacturing. Bangalore in India, for example, has one of the world’s highest absorption rates of commercial office space while Shenzhen in China is seeing robust demand for offices with net absorption volumes rising sixfold over the last 10 years. They face a number of challenges to boosting their international profiles including the need to create stronger talent pipelines and better use of land in the central areas of the city, including building more defined CBDs.
Cityscape of Shenzhen
Pavillion against skyscrapers in Chengdu
Powering up

Spread across China, the Powerhouses are performing strongly for short-term growth as they increasingly move away from manufacturing towards more capital-intensive and design-orientated jobs. Such development is helping them to register strong office rental growth. Although the likes of Chengdu, Tianjin, Nanjing and Suzhou benefit from strong national government support they are facing pressures to be more competitive while also addressing environmental concerns.
Pavillion against skyscrapers in Chengdu
Cyclists in Warsaw in summer

A modern mix

Located around the world, the Hybrids are typically mid-sized cities that compete in specialized markets and have enjoyed high levels of foreign investor activity in recent times. Dubai, for example, is one of the world’s top destinations for Foreign Direct Investment while Warsaw in Poland leads on cross-border real estate investment. While many Hybrid cities across the Middle East, Central Europe and Latin America are seeing robust corporate demand, higher levels of office space coming on to the market have positioned them among the weakest rental performers. 

Cyclists in Warsaw in summer
City skyline of Houston, Texas
Feeding domestic economies

A firm favourite among domestic investors, the National Growth Engines are well-established cities in stable, developed economies with easy access to large markets on their home ground.  Dallas, Houston and Atlanta in the U.S., for example, regularly feature among the world’s top investment destinations by offering a favourable blend of liquidity, transparency and market depth. However, as National Growth Engine cities compete on efficiency rather than innovation, improving local logistics networks is key to their longer-term competitiveness.
City skyline of Houston, Texas
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