Capital: Moving up the risk curve

Why is it that in the era of the most frenetic urbanisation the world has ever seen, 50% of all real estate investment goes into only 30 cities across the world when 300 cities contribute nearly half of global GDP? How is it that between them Paris, London, Tokyo and New York take 20% of that capital?[1] And where is it that may become the next popular destination for investment dollars?

Well these patterns have a lot to do with the personality of capital, and, like any personality, it alternates between being moody or vibrant, optimistic or concerned, adventurous or sedentary – and it reacts in different ways to opportunities and risks  – and is more aware of them post the financial crisis.  But almost universally, investment is attracted to growth as a prerequisite.

Until recently, 30 cities absorbed the lion’s share of real estate capital. These 30 cities are the biggest global players and embody the attributes of favourable investment destinations – low risk, quality assets, transparency, savvy mayors and solid connectivity.

global300There is c.US$200bn currently in search of real estate assets just in Asia Pacific and by 2020, there will be US$1tr trawling the world for the right investment.  For every $1 by value of property there is currently $14 chasing it. The challenge is a lack of good quality, investment grade properties in cities that meet risk and opportunity criteria.

This shortage has given second-tier cities and those not previously on the radar a chance to prove that they can create and leverage the momentum to attract international capital. Investors are drawn to cities that offer new strengths, particularly in the tech and life sciences sectors, those that are likely to secure the jobs of the future, and those that are competitive, resilient and financially savvy.

So, how to describe the new cities? Some are calling them the ‘concept city 3.0’.  The Mayor of Sacramento defines them as the ultimate service hub – the writer Charles Landry as the emotional city. Jane Jacobs might have called them “lively, diverse, intense cities (which) contain the seeds of their own regeneration”.

Certainly for the property investor, cities need to be all of the above, and to help capital reach markets in transition they also need to be transparent, a deep routed requirement that underpins investment decisions.

We are in the midst of an urban revolution and urbanisation, globalisation and technology are irrevocably changing cities. In parallel, at least for now, investors are moving up the risk curve as they seek opportunities in more unfamiliar places.

 

[1] JLL Global300: The new commercial geography of cities (December 2014).

About the Author

Born and bred in Liverpool, Rosemary understood at an early age that cities have very distinct characters. As a town planner and market strategist her personal interest in what makes cities work, grew into a career and a passion. She is now an International Director and Head of JLL’s Cities Research Programme which she set up 12 years ago. Cities are constantly evolving, she says, models and urban personalities change, technology is always pushing forward and the choice of cities in which to invest, develop, shop and live continues to extend. Analysing, tracking and interpreting and anticipating the nature of the New World of Cities is as important as it is fascinating. Rosemary is a Trustee of the Urban Land Institute and serves on the World Economic Forum’s Global Agenda Council on the Future of Cities.

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