As we look forward to 2016, the political, economic and social instability we have seen in many corners of the globe is likely to continue.
Many cash-rich investors have been vindicated post-2008 in their decision to put their money into real assets in safe locations with good title and political stability, rather than paper ones. We anticipate that core real estate markets will continue to be favoured for the foreseeable future, but the focus on globally recognised cities threatens to leave them fully valued and low-yielding.
The question of which locations will perform next, and which alternative real estate asset classes can be successfully invested, are at the forefront of many investor’s minds. In our latest 12 Cities report we have sought to provide answers.
We have taken an in-depth look at how the rise of the digital economy is changing geographies, property markets and the way we live and work. Our conclusions are wide-ranging: digital and financial rents have already converged in Sydney, and could follow suit elsewhere.
London remains the most expensive world city for workforce accommodation but, relative to economic productivity, Hong Kong, Shanghai and Mumbai are the least affordable.
Meanwhile in Dubai, urban planners need to take a closer look at the city’s zonal system to find a solution to providing more accommodation suitable for global tech occupiers if it wishes to fulfil its promise of becoming the leading tech destination in the region.
As property yields fall, investors may have to look at secondary locations for a better return. With the income received often lower than quoted market yields across all the city markets, looking at net effective yields (the actual income received as a percentage of capital employed) and how these compare to the relative lower return on a 10 year government bond in each city can give a more accurate picture of likely future returns.