Winning Cities in an Uncertain World

Occupier and investor activity in the global property market largely held up in the third quarter – but what are we likely to see in the next few months?   Sentiment has certainly become more cautious, which is hardly surprising given the volatility of financial markets and the uncertainty most of us are feeling over the economy.  For quality real estate however, we may see more rather than less investor demand – with low interest rates not to mention quantitative easing and other stimulus measures boosting the appeal of quality property.

Not any market will do of course and we’re already seeing pricing for some non-core assets come under downward pressure.  What’s more, what was clear from our recent “Winning in Growth Cities” report was that investors are continuing their flight-to-quality and are flooding into core global cities.

Top 25 Cities for Global Property Investment (12 months to Q3 2011)

Commercial property, excluding development sites.

 

 

 

 

 

 

 

 

 

 

 

 

Source Real Capital Analytics and Cushman & Wakefield

New York attracted most investment over the last year but the top 25 globally took 54% of all investment.  According to Wikipedia however, there are over 6 million cities in the world – so for investors to focus more than half their money on just 25 tells us something about risk tolerance and a need for scale and liquidity. Nonetheless, if investors only focus on the biggest, they may be missing out on opportunities to get better diversification by targeting a range of markets.

But where? A whole range of factors above and beyond size and wealth go to make cities a success, ranging from classic business location priorities through to softer factors such as image.  Advancing technology may give us the freedom to work anywhere, but this is only serving to reshape the role of cities as a melting pot of people and ideas, with the winners those that have the densest network of skills, knowledge and learning but also the richest backdrop of culture, innovation and quality of life.

What’s more, the increasing range of cities competing and cooperating on the world stage should be seen as an opportunity for investors to refine their thinking on what is a prime and what is a second tier city and expand their effective investment universe at the same time – which must be helpful in today’s market given the huge focus we are now seeing on just a handful of cities.

David Hutchings, European Research Group

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