By Alastair Hughes, Asia-Pacific CEO at JLL and a member of the company’s global executive board
How is the current economic cycle recasting the hierarchy of cities around the world? For a real estate company like JLL, the growth and transformation of world cities is at the heart of everything we do, so it’s a question that we have a passion for trying to answer. In our recent report, “The New World of Cities,” we try to look beyond typical indices to take a fresh approach to understanding the key factors that contribute to a city’s success.
Traditionally, the geography of commerce played the key role in determining the relevance of a city. London, for example, thrived during Roman times in part because the river Thames was narrow enough to bridge and, being tidal, was deep enough to allow ships to come and go, making it an ideal trading post.
Singapore’s enviable geographical location — right at the tip of the Straits of Malacca and with a deep natural harbor — also played an important role in the country’s development as a world-class city. Government policies aside, the island city continues to benefit from its strategic position as a gateway to Southeast Asia. Similarly, Hong Kong’s location has meant it continues to serve as a strategic channel for sea trade, and as a bridge between China and the rest of the world.
These three cities, together with New York, Tokyo and Paris form the “Big Six”: highly globalized and competitive metropolitan economies with the deepest and most settled concentration of firms, capital and talent. These established world cities have been hugely successful in attracting real estate capital, and such is their pull for sovereign wealth funds, institutions and high net worth individuals that the six together account for more than one-fifth of total global real estate activity.
However, globalization, urbanization and technological advances are creating sweeping changes. No longer does location alone determine growth. This is fundamentally changing the geography of commercial property and has deep implications for the real estate sector.
From a commercial standpoint, there are a few key conditions that are becoming increasingly important for a successful city. Among them are affordability, access to talented people, good-quality infrastructure, reliable governance and a desirable and affordable living environment.
Counting the cost
In fact, affordability has become a critical issue for cities such as London, New York and Hong Kong, where there is a pressing need for appropriately priced and flexible urban business space for the expanding innovation economy.
In the Indian city of Bangalore, for example, rent for offices is about US$12 per square foot per annum, which is about a tenth of Hong Kong’s rental costs. While Bangalore is increasingly a destination for outsourcing, it does not yet have the infrastructure in place to attract multinational company headquarters in the way that Hong Kong and Singapore do.
It’s clear that sustaining investment in transport networks, energy and utility grids, and communication systems will be critical to the ability of established world cities to absorb growth, manage demand and maintain their pulling power. Some, like Singapore, are managing to do this very successfully.
However, the Big Six can’t afford to be complacent. According to our findings, they must compete to stay relevant, given that other dynamic gateway cities are jostling to capture demand, notably Seoul, Sydney and Toronto. Throughout Asia, emerging world cities such as Shanghai, Beijing, Jakarta and Manila are making notable improvements in key competitive measures.
But given that these are some of the world’s most environmentally challenged cities, real estate will be a key driver of more sustainable urban models. Improvements in real estate transparency also need to progress at much greater speed, not only to attract new capital to emerging cities, but to enhance the business operating environment and contribute to the quality of life of citizens.
To retain their competitive advantage in this new landscape, the Big Six will need to execute bold urban transformation plans to support the shift to new modes of economic activity and to ensure the efficient recycling of land. As these cities move to the next phase in their evolution, the real estate sector will play a pivotal role in creating a sense of place and in contributing to cities’ identity, uniqueness and well-being.
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