This week鈥檚 Expo Real in Munich highlighted a widespread shift in strategy among leading global real estate investors. Institutions are increasingly targeting cities rather than national markets or sectors.
It was one of the main conclusions made by Alice Breheny, global co-head of research at Real Estate, on Tuesday. Breheny was speaking during the launch of a new report, which has highlighted five demographic 鈥榤egatrends鈥� that are expected to transform real estate markets.
Urbanisation tops the list. The report says 鈥渢he next five years represent a once-in-a-generation opportunity for real estate investors to position themselves as early movers to benefit from this wave of urbanisation鈥�. One of the two ways of doing this is to 鈥渋dentify the most promising urban markets鈥�.
Investors are looking 鈥渕ore to cities than sectors鈥�, Breheny said. The urban markets they should be targeting are those with young populations, wealth, quality of life and environment, infrastructure, organised local governments, and a rising middle class.
Speaking separately to IP Real Estate, David Hutchings, partner and head of investment strategy EMEA capital markets at Cushman & Wakefield, remarked that he was seeing 鈥渓ess emphasis on sectors, more on geography鈥� among investors. But he also saw 鈥渕ore competition between areas within cities鈥�.
Both spoke of the growing trend of companies setting up in city locations where people want to live 鈥� rather than the other way round.
Employers are 鈥渂ecoming more footloose鈥� as occupiers, Hutchings said. 鈥淭hey want a building that works for them and attracts workforce 鈥� and they are cost conscious.鈥�
Breheny noted this was also leading to more flexibility in building use, with offices sometimes being converted to residential or undergoing mix-use transformations 鈥� 鈥渋f this is where people want to live鈥�.
Alex Edds, head of sustainability and responsible property investments at TH Real Estate, said demand for properties in cities would most likely be driven mainly by the technology sector. They 鈥渆ffectively locate everywhere鈥�, he said, and can 鈥渟plit off parts of their business to cheaper locations鈥�.
Breheny agreed, saying while 鈥済lobal real estate investors tend to target financial sector properties and IT may see shrinking office requirements, the opportunity is in technology driving demand鈥�.
Edds said the other four megatrends identified by TH Real Estate would 鈥渁ffect regions and areas differently 鈥� and the resilience of a city to those impacts will be key鈥�.
He added that many investors were thinking about much longer-term approaches to their investments. 鈥淚n some regions, the impacts of these megatrends can already be seen,鈥� he said. 鈥淏ut, especially in the developing countries, it will remain to be seen how they pan out.鈥�
This will also lead to more selective investments in cities or certain urban areas. 鈥淭here are some investors saying they 鈥榗annot go鈥� into China 鈥� but it might be too big a market to dismiss in its entirety,鈥� Breheny said.
