What drives global real estate markets?

Panoramic view from Victoria Tower on Houses of Parliament and London skyline at night, London, UK

NAIROBI, KENYA: A Cushman & Wakefield report, Winning in Growth Cities, quotes the World Economic Forum (WEF) as positing that the main mega-trends relevant to cities are demographics and include urbanisation, the rise of the middle class and changing lifestyles.

These, according to WEF, are exemplified by the growth of Millennials or Generation Y.

The forum also lists rising inequality within cities, sustainability and pressure on resources, technological changes, industrial clusters and governance, notably in the face of a fall in trust in public bodies.

This report, however, sets out a number of factors that drive global real estate markets, including:

DEMOGRAPHICS

Successful cities globally will continue to expand but the power of Asian and Latin American cities in particular will grow due to urbanisation and the expansion of the middle class and Africa will continue to emerge on the global business map.

The report says a key aspect of demographic change is the increasing profile of the generation of millennials, also known as Generation Y. (Those born sometime between 1978 and 2003 depending on the definition used).

They are typically tech-savvy and connected while being team-orientated, environmentally aware and conscious of their work-life balance.

This group is gradually taking more power and influence and is becoming the main driver shaping lifestyles, culture and work environments.

Thus there will be a more general trend towards trying to address the real estate needs of the “millennials” and the ageing baby boom market.

KEY TREND

One key trend is the switch from suburban to urban in terms of the focus of where people and businesses ideally want to be as lines between leisure and work blur to make a central location more important and as cars are of lesser importance than walking, cycling or public transport to younger age groups.

Infrastructure will also be in focus as the world copes with congestion and pollution and looks to take advantage of new technology, retailing and trading patterns.

An improved transport network will enable a city to efficiently move labour, consumers and freight between multiple origins and destinations and will enhance growth potential

ENERGY AND ENVIRONMENT

Growing demand for energy on the back of urbanisation, ageing and increased wealth will lead to the maintenance of high prices and further growth in investment in new and renewable sources.

This will also be reflected in greater attention to energy efficiency which will impact on cities as well as buildings but will bring potentially higher costs and more regulation for landlords.

At the same time, the climatic risk faced by different cities will come more under the microscope, as will each city’s ability to change and withstand adverse climatic and environmental events.

Other aspects of the local environment, including social tensions and inequality, crime and terrorism will also put pressure on local resources and influence patterns of success.

A city’s environmental and security image is of growing significance to companies and employees, impacting on the cost of doing business but also the appeal of a location.

WORKING PATTERNS

New technology, longer working lives and more women in the workforce add to the search for a better lifestyle and quality of life triggered by improvements in wealth and education levels.

This will continue to generate demand for changes in working, living, leisure, and retail environments and for improvements in work-life balance.

At the same time, through technology and design, we need to create urban environments that add to health and well-being.

Millennials in mature markets prefer live-work-play markets in which convenience and access are all-important.

At the same time, new working practices will affect office size, design and location and lead to a densification of office use.

TECHNOLOGY

Technological change will continue to affect all aspects of business activity. Working patterns will be shaped by constant improvements in connectivity, while retail will be transformed by e-tailing.

Production will also undergo a major transformation as 3D printing spreads and changes in supply chain patterns emerge.

And technology for business-to-business and business-to-consumer activity will fundamentally affect design and the functions required of property and the relative attractions of different cities.

It will also affect property uses within the city, with industrial potentially the new retail.

BRAND

The brand name and image of a city will reflect hard factors such as resources, culture, press freedom, entertainment facilities and education as well as softer factors of image and whether a location is identified as “cool”, “tech” or “luxury”.

According to the Guardian Cities Global Brand Survey, top cities by brand are remarkably diverse globally, with five in North America, four in Latin America, six in Europe, Middle East and Africa and five in Asia Pacific.

The image and brand of a city is of increased importance to real estate: clearly to retailers as they battle it out in key global flagship markets but also for hotels, multifamily and office occupiers as they look to a city and indeed property brand to help them attract customers and talent.

For retail, the brand of the space needs to be prominent, striking, and aesthetically strong. For offices, identifiable icons such as campuses and towers may be preferred, with the image portraying size, strength, durability and capability.

CORPORATE DEMAND

The biggest challenge facing many corporates is how to attract and retain the human capital they need to grow or even to survive.

More and more companies are asking what they can do to increase effectiveness and engagement and this is reflected in the choices they are making by building and location.

Efficiency is still a close second for many, however – hence a focus on productivity remains.

The working style of tech, media and telecom companies is also influencing others, changing the type of space in demand more generally as everyone is competing for the same pool of talent.

This demands a rethinking of office space, with more collaborative and support space, nearby retail and hospitality, good public transport and a high quality technology infrastructure such as broadband.

Non-traditional locations will continue to emerge: with a search for trendy areas, offering a live-play-work environment, with supporting amenities.

With these changes not just about offices but also residential, retail and hospitality, divisions between property types are blurring, adding to the need for new buildings to be flexible in design.

Related Topics

WEF Generation Y