Cities are a big deal.
From climate to innovation and sustainability, cities globally are leading the way. Large or small, an urban hub or not, more and more the role of cities is growing, with a renewed focus on inclusion, cooperation and creating a viable future.
Commercial real estate plays a role in the development and ultimate sustainability of a city, as economics and living standards force citizens into new ways of living, working and gathering. In 2017, risks abound–globally, domestically and even more, on a local level as new communities take shape and established ones look to the future.
For more on the changing landscape and what “global cities” will face in 2017, Emerging Market Views spoke with Tom Walker, co-head of Global Real Estate Securities with Schroders, the UK-based investment management firm. Read on for an edited version of our interview and insights on emerging and developed market capitals.
Emerging Market Views: Within the emerging markets, which cities do you see as “winning” ones? The BRIC capitals or others? For example, does Sao Paulo have a longer way to go than Mumbai?
Tom Walker: We would highlight a number of Chinese cities such as Beijing and Shanghai. As well as cities like Jakarta and Mexico City.
EMV: As the middle class continues to grow within emerging markets, how can cities effectively meet demands for infrastructure and quality of life issues? For example, traffic is a major problem in many capitals across emerging markets, for example.
TW: This is a problem that is a constant in any city, whether developed or emerging. We believe the most successful cities will be those that can attract all types of businesses and provide the city inhabitants with a good quality of life. Critical to this is ‘urban planning’, ensuring that the city provides a rich and diverse experience. Over time, those cities that are not able to cope with the increasing demands of urbanization will not survive. Eventually, businesses will realize that they cannot attract and retain talent in a city with problems that affect an individual’s quality of life.
EMV: What is the outlook for global real estate in 2017? Are the prime opportunities in developed markets or emerging markets and why?
TW: It is not possible to give one comment for ‘global’ real estate, just as you cannot comment on the outlook for Europe or Asia in one sentence. Whether you are investing in developed markets or emerging markets the key to successful investing is the local knowledge, understanding exactly why a location will attract people. Despite this, whether we are looking at investments in any region we are optimistic about 2017. There are a number of markets which we are looking at where there is clearly more demand than supply. This is crucial because this will allow us to increase the rents received and lead to a strong total return. The key is focusing on the right asset in the winning city.
EMV: What city do you think is a “standout” city in emerging markets and why?
Beijing and Shanghai look very interesting, both cities rank first and second in our Global Cities index. We [Schroders] believe the diverse nature of businesses that are located within the city provides a very solid base that is crucial to any city. This ensures that we are not invested in a city that is over-reliant on one or two industries. In addition, I would highlight the increases in both the population and perhaps, more importantly, the working population which the city is expected to see over the next decade. While the headlines might focus on concerns regarding a slowing Chinese economy we believe both these cities will outperform both the country and the Asian region.