Commercial Real Estate Development Creates Dynamic City Growth, According to a New Study

February 11th, 2014 – in commercial real estate market trends

San Francisco, London, Dubai and a host of Chinese cities are the best-suited right now for commercial property development, according to a new measurement database created by Jones Lang LaSalle. The City Momentum Index (CMI) delved into underlying drivers of the most largest dynamic cities in the world, and created a list of the top 20. The index reported that cites that innovate quickly with new technology, new commercial property construction, property price movement and cross-border investment in Real Estate are a foundation for the world’s most successful cities.

“Real Estate can make a significant contribution to city competitiveness not only in terms of providing the appropriate infrastructure for business activity, but also in contributing to the environment and quality of life for residents, and providing the designs for the communities’ ambition,” said Jeremy Kelly, director of global research for Jones Lang LaSalle in England. “Individual buildings, schemes and skylines can brand a city through alignment with city identify and capturing the essence of a place.”

Jones Lang LaSalle researchers used the firm’s databases, which track corporate demand, new building construction, price movement and investor activity throughout the world, and borrowed data from other sources to complete the report.

The 10 cities with the most dynamic momentum are:

  1. San Francisco
  2. London
  3. Dubai
  4. Shanghai
  5. Wuhan
  6. New York
  7. Austin
  8. Hong Kong
  9. San Jose
  10. Singapore

Other cities to make the list include Jakarta (12), Los Angeles (15), Boston (17), Tokyo (19) and Lima. (20)

The San Francisco Bay Area cities are not a surprise to anyone, of course, but Tokyo surprised the researchers.

“For many years the city has been losing ground to its more dynamic regional competitors, such as Shanghai, Hong Kong and Singapore,” Kelly said. “But, Tokyo appears to have found new energy, further boosted by securing the 2020 Olympics.”

Commercial Real Estate brokers and agents should take note that the top four cities on the list, with the addition of Los Angeles and New York, accounted for one-fourth of the world’s direct commercial Real Estate investment activity between 2012 and 2013.

Additionally, strong investor competition in the largest cities, such as London, New York and Tokyo, is forcing some investors into secondary markets like Munich (one of the cities where Propertybase is located), Osaka and Seattle.

"(Commercial agents and brokers) are in a very important industry that is shaping the quality of people's lives and the vitality of cities, said Anita Kramer, vice president of the Urban Land Institute's Center of Capital Markets and Real Estate, in Washington, D.C.

Kramer, who agreed with Jones Lang LaSalle's findings, said that the world's urban centers are the center of innovation. She said it is critical to the growth of each country that cities are built not just quickly, but healthy.

“The foundations of all (Jones Lang LaSalle’s) cities research is that commercial Real Estate is a contributor to city success, rather than just a consequence of it,” Kelly said. “The intention of the CMI is to alert the Real Estate industry to ‘signals of change’ in terms of which type of cities and which locations are showing greatest dynamism.”

Kelly and other Jones Lang LaSalle researchers found it peculiar that two-thirds of the Top 20, according to the index, are in the United States and China, which tells them that future development is likely for other cities in these countries. But he warned that such strong momentum can also bring risk by “over-heating … so fast that it is difficult for cross-border players to keep pace.” Commercial agents, brokers and developers. How does this outlook affect what you do? Let us know in the comments section, below.

The CMI is only one tool for investors, and researchers took particular note of several cities that did not make the top 20 but possess other ingredients for success, such as Chicago, Paris, Berlin and Amsterdam. The list, which is expected to vary widely from year to year because it is a measurement of active momentum, may also include some African cities in the future, Kelly said.

ULI's latest Emerging Trends in Real Estate reports, which are split by region and measure different metrics, feature many of the same cities as the Jones Lang LaSalle.

"If you provide the kind of environment that people want to be living in, then you will have population growth and interest in people bringing their business there," Kramer said. "Everybody thrives."

Commercial Real Estate was not the only driver for cities on the index. Other factors included urban consumerism, the emergence of larger middle classes, technology, education infrastructure, presence of tech and venture capital firms, recent and projected changes in population and GDP, and two dozen more short-term and longer term variables. The initial study looked at 111 cities.

Commercial agents, brokers and developers. How does this outlook affect what you do? Let us know in the comments section, below.

Author: Roman Gokhman