Prime London Residential Markets

Prime London Residential Markets
 
London in a global context

21 September 2016, by Yolande Barnes

London’s prime residential markets are closely linked to its performance on the global stage

 

The decision to leave the EU will cause many to question whether London can retain its pre-eminence as a world city. Out of the other European cities, Paris is closest in terms of its connectedness, performance, power and global competitiveness, but even the City of Lights lags someway behind the Big Smoke given its employment laws.

Prime markets in gateway cities across the globe have been honeypots for international investors not only in London but also in New York, Singapore and Hong Kong, for example. Prime real estate markets in these ‘alpha cities’ are closely linked to wider business location preferences and investment preferences, reflecting the success and prominence of the cities on the global stage.

Where ready finance, rule of law, transparent markets and good title are available, real estate attracts global investment, not only because of its growth prospects and income producing capability but also as a store of wealth in a safe-haven jurisdiction.

Real estate also has the advantage over, say, gold by being a usable utility. The purchase of residential real estate is therefore linked to the number of visitors, business and investment transactions in a city. This means that the fundamental global attractions of a city will always have a major impact on its real estate markets.

In this regard, London scores very high on the world stage, just beating New York in Savills composite world city scoring system. Both these cities score significantly above the next rivals by this measure, Paris and Tokyo.

The unique combination of London’s social and environmental quality, as well as its size and economic prowess, means that the demand fundamentals for its real estate should remain strong through economic cycles and post-brexit wobbles.


CITY SIZE

The capital’s growth

Like many world cities, the economic influence of London extends well beyond its administrative boundaries. London’s metro area, that is the area within which most of its workforce lives, is the fifth biggest of our top 20 world cities, at nearly 15 million people. London’s population has been growing over the past 10 years at the 8th fastest rate of the 20 world cities, faster than Tokyo and New York but slower than the recently emerged cities of Dubai, Beijing, Shanghai and Singapore. It is forecast to continue growing at the 7th fastest rate in the next ten years, although possible immigration restrictions post Brexit might curb this growth.

London stands out among European cities in terms of both size and rate of population growth. Only the Paris metro area has a similar size population (12.5m) while the average size of other European city metro areas is just 3.3 million people. Meanwhile, the number of people in the Paris metro area has been, and is forecast to continue, growing at just 5% in the next 10 years. Other European metro growth rates are slowing and populations are forecast to increase by just 4% on average in the next 10 years.

 

 
London continues to grow

▲ London continues to grow


ECONOMIC POWER

World’s top three

London is even more dominant on the world stage when it comes to the size of its economy. The London metro has an economy which ranks 3rd in the world against other city metros. Only New York and Tokyo have bigger economies. London’s economy is forecast to grow faster than either of these cities in the next 10 years and will only be outstripped by the fast growing Asian cities and tech giant San Francisco over this time, according to Oxford Economics.

London’s projected 10-year economic growth rate, at 34%, exceeds the other European city average of 24%. London is set to have the 7th fastest growing economy of the 20 world city metros measured here.

The size and wealth of London matters greatly to its real estate markets as both factors create demand for buildings. The prospects for London in a global context also attract overseas investment for development and housebuilding.


SAVILLS WORLD CITY INDEX

Where does London rank?

The Savills score combines measures of global connectedness, performance & potential, power and competitiveness by a range of respected institutions to obtain an overall ranking of global city strength.

Although liveability and quality of life are included in some of the measures, this is by no means the determining factor in the demand for global real estate. The economic, cultural, educational and myriad other attractions of global cities appear to trump some of the inconveniences, such as congestion and pollution, of living in a large city metropolis. There is a noticeable difference between cities that do well in these respects versus those that score high for environment, lifestyle and living costs.

FIGURE 5

Savills World City Score

 
Figure 5

Source: Savills Research using GaWC, Kearney, Mori & EIU

FIGURE 6

Savills World City Ranking

 
Figure 6

Source: Savills Research using GaWC, Kearney, Mori & EIU

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