The call of the city - Urbanisation in Europe and its impact on real estate and investment strategies
Tuesday, November 6th 2018, Schroders, 1 London Wall Place, London, EC2Y 5AU

Even though Europe is already highly urbanised, with more than 80% of the population living in towns and cities, the UN predicts that this will rise still further to reach 87% by 2050.

Given that much of commercial real estate is located in urban areas, it’s clearly important for investors to understand what underlies this trend.  Richard Holt, Head of Global Cities Research at Oxford Economics, presented a wealth of information on growing cities, including some of Europe’s largest cities such as London and Stockholm as well as a number of smaller ones, notably in Poland and France.  Holt explained that business services and technology are the dominant activities in the largest cities, and that most of their population growth is largely due to inward migration – though Paris is a notable exception.  Successful cities benefit from the phenomenon of agglomeration – the economies of scale that result from companies working in close proximity.  The largest cities also have the best educated populations, he observed.

How can the increasing dominance of cities be explained? On the panel discussion, Stefan Wundrak, Head of European Research at TH Real Estate, suggested that 10 years ago people were saying  technology would mean the death of cities, but in reality people have needed to come together to make the most of technology.  As to which cities are likely to succeed in future, he proposed that some of the larger cities may be reaching a tipping point in terms of their effectiveness, for instance due to pressure on their transport infrastructure.

Jeremy Kelly, Director of Global Research at JLL, suggested that affordability is another growing issue, with cities such as Berlin and Amsterdam looking increasingly affordable on a global basis, something that is also being reflected in real estate capital flows.   Kelly identified social inclusivity and strong governance as two other areas that demand attention when considering where to invest – governance is key to enabling growth while maintaining social cohesion. However, Wundrak proposed that in some cities – Berlin, for example – people may be less interested in economic growth. But that shouldn’t necessary deter investors, as their success could be more sustainable.

Asked which cities they believe has the best prospects for the future, Kelly thought Copenhagen was highly attractive given its sustainability agenda and quality of life (‘hygge’), combined with relative underperformance up to now.  Wundrak favoured London, proposing that Brexit might actually make it work better if growth eased – while it would still remain exciting.  Holt meanwhile plumped for Stockholm, due to its strong macroeconomic drivers.


Tim Horsey