Future of Real Estate in major Cities Globally!

• San Francisco’s rental growth in last 5 years -37%

• Mumbai’s expected rental growth by 2019- 15%

• Houston’s employment is currently 10% above its last peak

• Shanghai’s net absorption expected to rise by 2015 -49%

Cities like Madrid, New York, London and Paris outperformed their national economy by 31% -72% reflecting surge in industries that shall surge Real Estate demand. An urban explosion is soon to be expected with a forecast of another 1.1 billion added to the city dwellers across the world in the next 15 years, nearly the equivalent of current population of India.

This reflects a sure shot rise in demand for real estate in future – However this time it shall be with a difference. The changing trends is giving rise to Global Cities in the world. These are distinct cities providing residential and work space for most high value knowledge workers thus attracting premium for real estate structures and also influencing their design and location. The population residing in these cities shall be replacing erstwhile industrial areas with new age districts, encourage the concept of collective living by getting office, residences, sports, leisure together. Investors see these cities as an opportunity to yield higher returns on investments thus investing big time into such projects. The infrastructure demand in these global cities shall be led by extremely talented and knowledgeable high value staff who shall demand transformation of office layouts from "desk in a row" culture to creative office spaces with a mix of workstations designed to enhance productivity. This shall call for Real Estate markets to adapt accordingly for sustainable growth.

There shall be a paradigm shift in real estate demand within such global cities and requirements for following kind of spaces shall gain momentum:-

• Super Prime – A luxury market comprising of small but most technologically advanced and exclusive buildings demanding highest rentals. This shall be rented by high end boutiques, mega banks and the likes who shall be catering to niche clientele thus making luxury offices essential to their business.

• Nano-Cores – A mix of commercial and residential structures with multi-level facilities such as gym, recreational center and public areas all available within one complex.

• CBD offices – Qualitative offices at central locations with superior rentals will be attracting major demands in future. They shall gain a better edge over the current office locations.

• All in one offices- Mix of serviced offices and tech incubators with various companies collating and operating together to create an amicable atmosphere. The tenants shall pay an all-inclusive rents for the space and staff facilities.

Earlier buying in core location at elevated prices was the trend. However, it has been well replaced by investing in land of opportunities as seen in many upcoming projects in China and Malaysia. The local investors are amalgamating with international wealth to employ local talent and establish themselves in the world’s leading global cities due to immense potential there.

Another point to consider is the growing importance of airports in shaping real estate developments. Investors are more interested in buying properties having direct connectivity through air with major cities in the world. For example, the UK region has gained investors focus due to direct flights from the Middle East to Birmingham and Manchester and Dubai has gained popularity as an aviation hub.

The timing is also of the essence – Political instability, currency fluctuations and poor regulations make it difficult to invest in Asian markets and South America. The most viable markets are that of Nigeria and Botswana in Africa due to their oil discoveries and clients preferring the region for its telecom development. Cape Town, Johannesburg and Lagos are also strategic hubs, and Dubai services a growing flow of African investment capital.

Recent past has seen an astonishing advancement in technology and the trend shall continue in a multifarious manner in future too. The adaptation to technology is also rapid causing changes in our lifestyle. Acceptance to technology is evident by the plain fact that no. of IPads sold since its launch is more than the population of Brazil-225 million vs 201 million – An unbelievable ratio,isn’t it?Such development in technology and digitalization is also giving rise to economic opportunities that shall lead to formation of many hybrid industries increasing jobs and employment opportunities. This in a combined way shall lead to increase in demand for new offices in a prime location energizing demand in real estate markets. New skyscrapers shall be built and existing land optimized through development of nano-cores.

If we talk about the next five technologies that shall change property markets, credit can go to Office robots and cleaning robots causing change in the storage space and office structure .Use of technology in operating everyday appliances that shall probably help us remotely control our devices like a fridge monitoring its stock and ordering new supplies on its own creating a surge in e retail causing increase in demand for logistics and also shifting the demand from regular offices to smart office buildings which can partially manage themselves. Similarly driverless cars, Drones and 3d printers shall also trigger changes in how we perceive real estate today.

Real estate success both for investors and occupiers depends largely on great timing, rightful selection of location and building the right infrastructure as per changing needs. Let us evaluate the future trends of real estate over the globe and also navigate through the world’s leading cities to understand this better.

Cut edge technology with sky scrapers, super prime offices and nano-cores giving new name to the cities as Super city

Hong Kong demands heaviest premium amongst the world on commercial real estate which is 50% higher to the 2nd most expensive commercial real estate market of Tokyo. This is due to its restricted geographical area and people willing to give higher rentals for upper floors exhibiting panoramic views due to the height. London is the highest rent attracting city in European markets followed by Paris, Frankfurt and California, the later one due to good growth in technology sector.The Oasis Tower in Mumbai will be 372 meters (1,220 ft.) high, making it the second tallest building in India on completion in 2016. The scheme consists of 85 floors, of which 53 will house a hotel, office and retail space. The remaining floors will be apartments. Similar skyscrapers are coming up in London, China, New York and California.

The earlier industrial areas or those locations that saw decline due to redundancy, deindustrialization or any such reasons are now gaining momentum in global cities around the turn of millennium. This is causing the knowledgeable and more talented section of working class to shift to such parts of the city giving rise to a new trend and new districts bringing them to the center stage of economy. These districts are gaining significance as the possibility of creating new residential units to match the young working population is optimum here. The companies are also now more focused on staff retention and satisfaction and thus looking at operating from areas convenient and near to employees residence .The entire loop shall be a cause of growth for these districts in the future of real estate.

The SOMA region of San Francisco is gaining increased popularity amongst youth due to its neighboring areas that are trendy and fashionable as compared to the Silicon Valley. This is the reason that despite the famous Silicon Valley, San Francisco has witnessed 57% rise in tech jobs since 2010 to 2013 with major players opening huge offices here. New York has over 500 tech and creative firms employing over 10,000 workers, allin just a 10-block radius of the DUMBO region as it fits well into the requirement of the young knowledgeable talent there. Similar developments have been seen in London and Beijing.

The ten top offices in the world are a proof to the rapidly changing global cities – Innocent in London, Fujitsu in Sydney, Pons & Huot in Paris, Pinterest in San Francisco, Reed Smith In Singapore, Google in London, Microsoft in Amsterdam, DTAC in Bangkok, Splunk in London and Oro Negro in Mexico.

The recent times have witnessed a spur in investments across residential sector globally mainly for investment purposes accompanied with other reasons such as lifestyle changes. This is proved by heavy investments made by Chinese and Asian property firms in cities of Sydney, Los Angles, New York,London and other key hubs. A revived interest in investing in real estate can also be measured from the fact that 2Q14 saw a rise in Prime Global Cities Index by 6% as compared to 1% in the same period last year. With the economic crisis settling down, emphasis is again seen on identifying micro market opportunities in 2015. Most of the world’s leading city is now seeing a fresh wave of upward trend in residential market performance with Jakarta and Dublin as the most prominent gainers.

London, Jakarta and Miami have been the leaders in outperforming the price growth in residential markets over a period of 5 years till early 2014. A 36% price growth is seen from 2Q2009 to 2Q2014 while a 25% price growth is seen from the pre-crisis peak. Beijing and Shanghai has seen 84%and 65% growth over our five year period. However investors shall have to accept now that the growth has been inflated and was on account of low interest rates, government support and quantitative easing options which shall soon be taken down slowing down price growth in these markets.Having said this, there shall still be opportunities like Cape Town and Dubai to invest in on account of strong activity on the Atlantic Seaboard and limited stock below USD 4,70,000 while the latter is relatively inexpensive as compared to global markets. Mumbai and Bengaluru shall also be major cities in India that can be looked at investing in for the expected price growth in 2015.

The real estate markets are also expected to soar across global cities in the world owing to few opportunities that are shaping up. New wealth from Super HNI customers with an average investable surplus of more than USD 30 million is expected to flow into the markets as their population is expected to rise from current 1, 68,000 to 2, and 15,000 by the year 2023 in the global cities. Similarly improving economies across the world with a special mention of India are creating significant opportunities for builders and developers. A wave of positivity has spread across India with the new Narendra Modi’s government invoking business confidence, creating better policies, enhancing employment and boosting infrastructure. Investors also seek opportunities through stable and matured markets that have been continuously generating returns in the past and are considered to be safe havens for investment. Such opportunities are identified in the markets of London, Sydney, New York, Miami and Vancouver. Apart from this, opportunities for real estate growth can be seen in countries that have been facing economic and political downturn since long and have now stepped up the ladder of recovery. The uncertainties seem to be fading giving rise to hike in prices in cities of Dublin, Rome, Madrid and Paris attracting investors to invest at weaker prices.

The rapid scale of urbanization, formation of CBD offices and complexes and up scaling of the inner urban areas, the bet is what shall be the next best investment opportunity. Investors are looking at areas close to the rapidly developing areas or near the CBD’s and wondering what shall be the best investment options.

Knight Frank has come up with a list of possible investment avenues that might yield highest returns based on their location, infrastructure, planning, development opportunities, vicinity to education and health centers and many more factors.

The list includes top ten locations which include Williamsburg, Brooklyn in New York, Kachidoki Bay Area in Tokyo Toyosu, Barangaroo in Sydney, 16thArrondissement in Paris, Cape Town CBD in Cape Town, Runda and Gigiri in Nairobi, Kowloon West in Hong Kong, Tiong Bahru in Singapore, Victoria Park in London and Business Bay in Dubai.

Asian Markets- Talking about specific markets and their demand for real estate, the Asian markets have seen increased activity in the real estate landscape over the recent years and shall continue to face significant changes in next five years owing to the changes in consumer patterns, increased activities at international levels and economic upside seen in the countries. A better connectivity in the Asian countries has pepped up inter border investments causing increase in real estate demand while better infrastructure is needed to support the actively growing economy causing property markets to develop. The net absorption of residential and office space has picked up with substantial development noticed in Indian Real Estate while mega infrastructure projects such as Sunda Straight bridge, Indonesia , Beijing airport and Kumming , Singapore Railway are due to be launched. Going forward new institutions are likely to emerge from developing Asian economies and more institutional capital can be expected from China, Indonesia, India and Thailand.

Australian Markets– Australia is a seriously considered location for investment in international markets which is evident from offshore purchases amounting to 45% of all office transactions. This is owing to transparent markets, stable legislative environment and cyclical robustness as against competition, Sydney is currently dominating the office space with 39% contribution in over all market followed by Melbourne, Brisbane, Canberra, Perth and Adeliade while rise in new office stocks is expected to grow approximately by 15% over the next five years. The industrial markets are also showing growth trends attracting foreign capital though not at the same pace as office space.

America– A surge in opportunities for commercial property markets is seen in America due to changes in technology and advancement in energy sector. Educated masses are being attracted to the central cities causing the companies looking at hiring them to shift their base to surrounding neighborhood. The five major cities transforming real estate outlook here are New York, Washington D.C, San Francisco, Houston and Mexico. The lower interest rates and friendly federal policy has so far provided impetus for the growth of Real Estate markets and a gradual growth is also seen in the leasing market which is expected to gain momentum in next 2 years. A gradual increase in interest rate is expected in early 2015 but the economy is expected to maintain strength and sustain such fluctuations over a longer period of time and demonstrate continued growth in real estate. North American property markets are driven by industries such as manufacturing, technology, financial, tourism, healthcare, aerospace, science, energy and automobile manufacturing. Investors focus also seems to be shifting from major gateway cities to investment in smaller cities like California, Inland West, Chicago and the likes.

A paradigm shift is seen in the real estate markets and it is not long before that the construction, designing and office space as seen in the current world would soon be replaced by a new age property world. The future of Real Estate in most of the countries seem progressive with creation of new hubs as per changes in technology and likes of the upcoming generation.