By Andy Schofield, Director of Research, The Real Estate


Global mega trends are reshaping the world economic order, with rapid economic growth in emerging countries leading to mass urbanisation in cities across Asia, Africa and South America. As these cities undergo a gradual transition from production to consumer industries, and increase their share of financial and business services jobs in the workforce, exciting opportunities will arise for global real estate investors.

Notwithstanding the enormous challenges facing emerging market economies at present, rapid economic growth has been heavily focused on emerging world cities in recent decades, particularly in Asia and Africa, where urbanisation trends have produced an enormous expansion of existing conurbations, along- side growth in new cities.




Fig.1 shows the “league table” of the world’s 25 most populous cities, ranked by projected population size in 2030. According to projections by Oxford Economics, by 2030 only five developed world cities will retain a place on the list, and most of them will have lost relative ground com- pared with today. Lagos and Kinshasa in Africa are expected to see the largest change in their relative positions, and Jakarta is set to displace Tokyo as the world’s largest metro with a projected population close to 40 million, around five times the size of Greater London today. The rates at which emerging world cities mature economically will vary and some will outgrow their developed counterparts in economic size. A swathe of Chinese cities along with Bangkok are predicted to outgrow the likes of Munich, Stockholm, Madrid, Milan and Rome, in terms of GDP size, by 2030. Shanghai will almost catch up with Paris, currently the world’s fourth-largest metro area, and despite experiencing healthy GDP growth itself, London could be looking nervously over its shoulder with Shanghai and Beijing not too far behind.



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Rapid urbanisation will be accompanied by major new job creation and rising prosperity, particularly for those cities that are able to make the transition to higher economic value services. Of the leading 25 world cities for the creation of new office jobs between 2015 and 2030, only London and Istanbul represent non- Asian cities, with Paris Metro in 29th spot. Beijing easily trumps the rest, where Oxford Economics predicts a further three million office jobs will be created over the next fifteen years. However, this does not mean developed office centres are going to vanish from the list of the top office locations. Many have enormous scale and enjoy major competitive advantage. London, Tokyo, New York and Paris are still expected to grace the world’s top 10 markets in terms of the size of the office workforce in 2030. Other developed markets will also retain their place among the top 25: Chicago, Los Angeles, Washington and Dallas in the US; Seoul and Singapore in Asia; and Moscow in Europe. However, many of these world cities will lose relative ground to emerging world cities. And if these projections prove to be correct, seven Chinese cities will appear among the world’s top 25 largest office workforces in 2030, with Beijing the world’s largest. Mumbai and Delhi will make the top 10 and, outside of emerging Asia, São Paulo, Rio de Janeiro and Mexico City will also make the cut.


At present, the desire of institutional investors to access real estate opportunities in emerging world office markets is curbed by their high degree of structural real estate market risk relative to their own country, notwithstanding other significant barriers to entry. In fact, most cities outside of North America, Eu- rope and Oceania that have relevant scale for investors, defined here as having an excess of 200,000 financial and business services jobs today, lack the required transparency for overseas institutional investors.

GRETI 2016 reveals that Sub-Saharan Africa has continued to make advances in real estate transparency over the last two years, although progress has been more mixed than in 2014, when SSA registered the largest improvement among the global regions. Out of the 12 markets from the region included in the 2014 Index, six (Botswana, Zambia, Ethiopia, Nigeria, Angola and Ghana) have recorded reasonable progress in transparency. Advances in the ‘Market Fundamentals’, ‘Performance Measurement’ and ‘Governance of Listed Vehicles’ sub-indices have supported the overall regional improvement, as greater involvement by international real estate consultancies and local data providers elevates the level of access to information about real estate markets; Kuala Lumpur in Asia; and São Paulo and Rio de Janeiro in Latin America. But JLL acknowledge positive forces that are moving global real estate markets towards greater transparency. These should remain strong in coming years as governments in emerging countries pay greater attention to regulatory enforcement and anticorruption. JLL anticipate that open data policies, aided by technological advances, along with the introduction of REITs, will help to boost transparency levels further. Emerging world cities that do not make the cross-border shopping list today might therefore be on the investor radar in a decade’s time.


As mentioned, transparency is just one of many relevant real estate risk factors that must be taken into consideration. Liquidity, income security, and cyclical volatility are pertinent considerations, as are wider economic, environmental and political factors at the national level, such as the general rule of law, incidence of corruption, sovereign credit-worthiness and cli- mate change. Investing in China Tier 1 office markets today, requires a significant leap in risk appetite for overseas institutional investors. Aside from economic and political risk, the hurdles in accessing the market are significant, which perhaps explains why combined investment flows from the US and Europe have constituted just 10% of overseas transactions into China over the past decade. Extensive and on- going country and real estate market due diligence is therefore essential for all of these potential long-run target markets. In the meantime, institutional investors will inevitably focus on traditional office centres in the developed world cities of North America, Europe and Oceania, particularly those centres with high liquidity and where risk-adjusted returns are both easier to quantify and are better understood.