The select band of established ‘Global Cities’ are enjoying strong demand for real estate as investors seek the low risk option in a challenging economic environment.
Despite increased competition for international real estate investment, the picture is still dominated by the top global cities. Research from the Greater Paris Investment Agency (GPIA) and KPMG shows that the top five captured 50% of all greenfield investment in the cities studied during 2010, while the top 10 account for almost three quarters of available funds.
Due to the prevailing economic climate the recent trend has seen investors looking for safe opportunities in the core, regulated markets of these top cities rather than pursuing growth. In its recent report, Winning in Growth Cities 2011/12, Cushman & Wakefield identified the top five cities for global investment as New York, London, Tokyo, Paris and Hong Kong, with London heading the table for attracting foreign investors.
The underlying drivers of city success cover a range of factors beyond size and wealth. These range from traditional business location priorities through to ‘softer’ factors such as connectivity and space to grow, quality of life and place, a skilled labour force, innovation and creativity, entrepreneurship and transparency of the business environment.
Longer term influences include issues such as openness to migration, the ability to foster international trade, the power and influence of the native language, investment from all sources and sustainability.
Not that the position of the leading cities is unassailable. Major cities in emerging economies are improving rapidly on most measures and will provide an increasing challenge in coming years as competing city authorities create attractive, dynamic environments where businesses want to operate and where people want to live.
According to Seth Pinsky, president of the New York City Economic Development Corporation (NYCEDC), past history is no guarantee of future success: “Instead we have adopted an aggressive and, in many cases, innovative series of strategies designed to promote recovery and ensure that, going forward, our city maintains the competitive advantages that have served it so well.” Pinsky can point out 60 initiatives launched by NYCEDC to ensure that the best and the brightest not only want to live and work in New York but are also able to grow their businesses or create thriving enterprises.
“At the same time that we have been working to transform the way our city does business we have also been working to transform the physical face of our city, investing in new infrastructure, creating new amenities and, in some cases, creating whole new neighbourhoods that will ensure our city remains an affordable and attractive place in which to live and work,” he said.
According to Denis Tersen, CEO of the Paris Region Economic Development Agency, the French capital’s competitiveness is founded on its closely-knit, diversified and innovative economic ecosystem.
“The Paris Region’s main strengths include a real estate supply that is varied, often of high quality and competitive in meeting a range of needs and requirements (offices, warehouses, business premises, research laboratories, retail space, etc.). The 800,000 businesses located in the Paris Region amply illustrate this fact,” he said.
He notes that, as part of drive to improve environmental standards and maintain its appeal to international investors the City of Paris has undertaken a major urban renovation plan – 10% of its territory is currently being rebuilt to greener standards – as well as investment in new infrastructure.
“Public awareness of sustainable development is growing, resulting in policy decisions that have profoundly affected commercial real estate properties. The changes call for new ways of thinking, new approaches to architecture and the design and construction of buildings and a re-think of working methods and the organisation of production,” he says. “Already, new kinds of building are springing up from the landscape, and industries and businesses are being developed to respond to the new demand.”
While investors are currently risk-adverse the medium-term story for global real estate is expected to be about the growth of emerging markets.
“Issues that affect risk are usually dealt with on a national level. However, when we start talking about a growth agenda, that is when the policies adopted by individual cities can make a real difference,” said Cushman & Wakefield’s head of European research, David Hutchings. “The primary focus should be on moves to help promote a diverse economic base that is appealing to investors and on tackling the economic blight of secondary space – many cities have too little prime space and too much old stock that needs to be recycled.”
Experts predict that the global cities will in the future find fewer factors to differentiate them with the convergence of infrastructure, real estate and even political and juridical conditions under the pressure of increasing competition.
Obviously key drivers such as population size and economic strength are not issues that can be changed quickly, if at all. However, improving communications and developments in information technology mean that increasingly, winning cities are those that have the most concentrated network of skills, knowledge and learning, coupled with the richest backdrop of culture, innovation and quality of life.
Cities that cannot compete in terms of size or economic influence will evolve skill clusters that will enable them to compete globally in specific niche markets and the recent C&W research highlights a growing band of global markets competing but also co-operating in a global city network. It notes that national, regional and global hubs of specialised skills and services are emerging and predicts that a number of cities from Asia and South America will come to the fore over the coming decade.
“We are seeing the evolution of a more interdependent network of cities with many important nodes on the network, often with their own specialisation, be that as a finance centre or an oil city, and with the degree of connectivity a key factor in their likely success,” said Hutchings.
“Today the top five to 10 cities in the world are easy to name, but below this competition is strong and positions are fluid. In the future beneath this top tier we are likely to see the evolution of 20 to 30 key locations around the globe as national, regional and global hubs of specialised skills and services emerge.”