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March 23, 2017

A new breed of city is beginning to challenge the world’s traditional and most established markets, according to JLL’s latest Investment Intensity Index (III).

The III compares the volume of direct commercial real estate investment in a city over a three-year period relative to its current economic size, providing a measure of market liquidity and a barometer of a city’s overall economic health. Covering 150 cities around the world, this latest edition identifies the top ranked 30 cities.

The Index found that ‘New World Cities’ – specialised, liveable, small- to medium-sized locales with robust infrastructure and transparent markets – now dominate the top ranks of the index, accounting for 21 of the top 30 cities. Their contribution to global investment volumes has risen from 12 percent in 2006 to 23 percent in 2016.

Investor appetite remains robust for assets in the most globalised metropolitan economies, the ‘Established World Cities’ – those locales with the most highly globalised and competitive economies and the deepest concentrations of companies, capital and talent.

However, with a few notable exceptions, ‘Emerging World Cities’ – the business and political capitals of large or medium-sized economies that function as gateways for international firms, trade and investment – are struggling to gain the attention of investors. There are no Emerging World Cities in the top 30 of the most recent III.

“Many of these New World Cities are achieving global reach through specialisation and display an ability to adapt to constantly changing economic and technological demands,” says JLL’s Director of Global Research, Jeremy Kelly.

Over the past decade, a core set of 40 New World Cities has increased its share of global real estate investment volumes, growing from 12 percent in 2006 to account for 23 percent of global volumes in 2016, overtaking the share of global investment into the ‘Big 6’ markets of New York, London, Paris, Tokyo, Hong Kong and Singapore.

“New World Cities are also increasingly attractive to cross-border investors, and now account for over one-fifth of global cross-border transactional activity, up from 14 percent a decade ago,” he says.

Technology and innovation are boosting the attractiveness of New World Cities in the United States, with Silicon Valley, San Francisco, Boston, Seattle, Austin, Denver, Raleigh-Durham, Phoenix and San Diego all appearing the in Top 30.

While New World Cities dominate the top 30, several Established World Cities also make the list, with London (2nd), Sydney (8th) and New York (9th) ranked highest in this group.

“Investor appetite for prime assets in the world’s most globalised markets continues to be robust, and Established World Cities top the rankings for absolute investment volumes, with 8 cities among the top 10 markets,” Kelly says.

With no Emerging World Cities in the top 30, investors appear steadfastly focused on mature cities in transparent markets.

“Despite being among the world’s most rapidly globalising cities and acting as gateways for international trade and investment into rapidly expanding economies, combined Emerging World Cities still account for only 6 percent of global volumes,” Kelly says.

Only Shanghai and Beijing have built up a critical mass of investment activity, sitting consistently in the Top 30 for absolute volumes. However, both cities fall short of attaining ‘Established World City’ status.

“Despite their appeal, Emerging World Cities will need to improve market transparency and regulatory oversight, and build robust financial platforms, in order to attract investment volumes to match their growing economic weight,” Kelly says. Low stock availability, market entry conditions and infrastructure challenges are also significant factors for these locales.

“However, with real estate allocations from institutional investors on the rise, and new sources of capital targeting the sector, investors will look increasingly to Emerging World Cities to satisfy their requirements, with an estimated 60 percent of the global office development pipeline to 2020 in emerging markets.”

Click here to view the full Investment Intensity Index 

Jeremy Kelly
Director, Global Research, JLL

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