Venture capitalists looking for large returns in long term investments may see more opportunities in developing megacities rather than mature cities.
When reviewing real estate venture opportunities throughout the world, the risk adverse fund manager would likely choose a more prominently developed region to devote capital; for example London, New York, and Tokyo. These cities seem to exhibit a perpetually growing economy where rent ceilings know no bounds. “Five million more people, every month, live in cities…, and in 2011, more than half the world’s population is urban”. Although these markets display strong return performance, what will the future of these developing megacities look like when compared on a global level?
Most property type demand drivers can be analyzed through population projections. Existing cities continue to expand enormously because urban density provides the clearest path from poverty to prosperity. However, negative externalities present in cities (i.e. high crime rates, pollution, and traffic), inhibit larger cities from growing rapidly. Research economists around the world have provided quantifiable data that our most mature cities have stagnated or seen no population growth.
Data collected by the Department of Economic and Social Affairs of the United Nations indicates that Europe has a smaller projected population in 2050 than in 2017. Some developed countries are expected to see a substantial decline in population by 2050 including; Japan (-14.6%), Germany (-3.4%), China (-3.1%), Greece (-10.5%), and Italy (-7.1%). The origin behind population stagnation or decline varies by each region but, can sometimes be attributed to weak economic prospects, city overcrowding, or poor government management.
Megacities are defined by the United Nations as cities with over 10 million inhabitants. There are currently 21 megacities across the globe. By 2025, 27 megacities will exist, 21 in less developed countries. Some of these current mega cities include: Dehli (India) with 36 million, Mumbai (India) with 27.8 million, Lagos (Nigeria) with 24.2 million, Kinshasa (Congo) with 20 million, Cairo (Egypt) with 24.5 million, and Karachi (Pakistan) with 24.8 million. 2.2 billion people are estimated to be added to the global population by 2050. Out of that, 59% will come from Africa and 34% will come from Asia.
In the group of 47 countries designated by the United Nations as the least developed countries (LDC), 33 are in Africa, which has one of the highest growth rates, around 2.6% annually. Theses 47 countries continue to see especially high population growth even though 50 of some of the developed areas will see a shrinking population due to low fertility.
Demand for city space in developed regions will always be present due to efficiencies in agglomerative economies. However, venture capitalists looking for large returns in long term investments may see a “bigger bang for your buck” in future megacities made up of our current least developed countries.
Experts will weigh in on our future megacities at MIPIM 2018, where “Mapping world urbanity” will be the central theme in the 2018 conference programme.