This week’s Expo Real in Munich highlighted a widespread shift in strategy among leading global real estate investors. Institutions are increasingly targeting cities rather than national markets or sectors.

It was one of the main conclusions made by Alice Breheny, global co-head of research at TIAA Henderson Real Estate, on Tuesday. Breheny was speaking during the launch of a new report, which has highlighted five demographic ‘megatrends’ that are expected to transform real estate markets.

Urbanisation tops the list. The report says “the next five years represent a once-in-a-generation opportunity for real estate investors to position themselves as early movers to benefit from this wave of urbanisation”. One of the two ways of doing this is to “identify the most promising urban markets”.

Investors are looking “more to cities than sectors”, Breheny said. The urban markets they should be targeting are those with young populations, wealth, quality of life and environment, infrastructure, organised local governments, and a rising middle class.

Speaking separately to IP Real Estate, David Hutchings, partner and head of investment strategy EMEA capital markets at Cushman & Wakefield, remarked that he was seeing “less emphasis on sectors, more on geography” among investors. But he also saw “more competition between areas within cities”.

Both spoke of the growing trend of companies setting up in city locations where people want to live – rather than the other way round.

Employers are “becoming more footloose” as occupiers, Hutchings said. “They want a building that works for them and attracts workforce – and they are cost conscious.”

Breheny noted this was also leading to more flexibility in building use, with offices sometimes being converted to residential or undergoing mix-use transformations – “if this is where people want to live”.

Alex Edds, head of sustainability and responsible property investments at TH Real Estate, said demand for properties in cities would most likely be driven mainly by the technology sector. They “effectively locate everywhere”, he said, and can “split off parts of their business to cheaper locations”.

Breheny agreed, saying while “global real estate investors tend to target financial sector properties and IT may see shrinking office requirements, the opportunity is in technology driving demand”.

Edds said the other four megatrends identified by TH Real Estate would “affect regions and areas differently – and the resilience of a city to those impacts will be key”.

He added that many investors were thinking about much longer-term approaches to their investments. “In some regions, the impacts of these megatrends can already be seen,” he said. “But, especially in the developing countries, it will remain to be seen how they pan out.”

This will also lead to more selective investments in cities or certain urban areas. “There are some investors saying they ‘cannot go’ into China – but it might be too big a market to dismiss in its entirety,” Breheny said.