The world’s fast-growing urban population presents interesting investment opportunities over the next few years. When looking at global property investment for 2016, investors have the choice between established but slower growing cities or emerging urban centres with faster growth. Asia concentrates the bulk of new cities with Dubai a rising star among them.
The annual Global Cities Report compiled by Newmark Grubb and Knight Frank concludes that major infrastructure projects are reshaping growth in many of the world’s largest cities. As a result, businesses are relocating within urban centres and new business districts are emerging in areas previously dedicated to industry. In these new business locations, demand for new property in the shape of residential, office and retail is growing.
According the Report, the world’s urban population will grow by 380 million by 2020 with the vast majority of this growth taking place in middle-income countries home to many emerging economies. This increase in city size will take place both in established cities and in new urban centres. Since 1990, 470 new cities have formed in Asia, mostly in China and India.
Established versus emerging
The Report recognises the vast real estate investment opportunities present in these growing cities and presents the choice facing the global property investor. On the one hand, established cities, mostly in high-income countries such as the US, Singapore, Germany, France and the UK present slower growth statistics but at the same time have a higher-income population. On the other, emerging cities offer faster growth but also higher risk.
According to Newmark Grubb and Knight Frank, global property investment in 2016 will be marked by two main income sources. The first will come from North America (mainly the US) where the favourable exchange rate for US investors makes global real estate investment exceptionally attractive. The second has its origin in European investors buying property in Europe where yields obtainable from property are considerably higher than those available from bonds.
Buoyant office markets
The Global Cities Report includes the Skyscraper Index for office rents in the world’s largest cities. Hong Kong continues to have the highest office rents with a price of US$225.50 per square foot per year in Q2 2015. However, the cities of London and San Francisco have shown the fastest growth in office rentals with increases of 10.7 and 8.2 per cent respectively.
The Report also finds that the evolution in business trends is leading to changes in office layouts with the tendency towards offices that provide leisure spaces such as fitness rooms and relaxation areas. There’s also a move towards flexible office working with some companies no longer providing desks for each employee, a tendency particularly apparent in the Sydney office market.
Dubai new aerotropolis
Among the global cities highlighted in the Report as an example of expanding infrastructure is Dubai, which, as Knight Frank points out, is already a “city of superlatives”. The latest addition to highest building, tallest skyscraper and largest mall is busiest airport. Passenger numbers at Dubai Airport top 70 million, ahead of London Heathrow, and airport authorities predict that the Airport will receive over 100 million airline passengers by 2020.
The adjacent Dubai freezone area, Dubai Airport Freezone is expanding its facilities to accommodate new businesses drawn to the airport hub. However, lack of land means the focus has shifted to Al Maktoum International Airport under a 10-year expansion plan that includes the extension of Dubai South Freezone.
Dubai South will host the World Expo in 2020, an event expected to draw over 25 million visitors of which around 70 per cent will be from abroad. The strategic location of Dubai South within the Emirate and the world – four hours’ plane journey from one third of the world’s population and eight hours from the remaining two thirds – makes Dubai one of the global cities to watch in 2016. According to Newmark Grubb and Knight Frank, the new airport and office infrastructure “should guarantee Dubai’s reputation as a global centre over the next decade”.
Source: Newmark Grubb & Knight Frank