The global trend towards urbanisation is rapid and more relevant than ever for real estate investors, according to Alice Breheny, global co-head of research at TIAA Henderson Real Estate.
Breheny told the IP Real Estate Global Conference 2015 in Copenhagen: “Surely, this ought to represent the biggest opportunity for investors, developers and service providers.”
She said 2012 had been the year in which the majority of people in the world shifted to living in urban areas from living in rural areas.
“Urbanisation is the single mega-trend that is impacting real estate at this moment,” she said, adding that the fast pace of the change was showing no sign of change.
“We’re predicting growth in urban populations globally of 3-4% per annum,” she said.
She said this growth would go on for a long time, and meant that, over the next 25 years, another 2bn people would move to cities.
“That’s equivalent of a quarter of the world’s population today, so it really is something that is not to be underestimated.”
However, she noted that this was not a uniform trend around the world.
“It’s Africa and Asia-Pacific where we’re going to see the most rapid growth in absolute terms and volume-wise over the coming decades,” she said.
By 2040, urban populations in China, India and Nigeria will all have grown rapidly, according to the projections.
Breheny said it was also interesting to look at the places forecast not to have grown by then.
Urban populations in Japan, Russia and Germany, for example, were all forecast to decline by 2040.
However, this is more about wider population decline in these economies rather than people deciding against living in cities, she said.
“You need to be very careful when you’re investing in markets where you’re seeing declines in urban populations because there’ll be certain places that (…) no longer have the ability to attract young people,” she said.
“They’ve become less economically viable and, longer term, much less viable as destinations for real estate capital.”
Comparing global regions to see where the opportunities for investors lay, Breheny pointed to growth in urbanisation in China, India and Nigeria.
“I think you’d invest in Africa for growth, first-mover opportunities, and you’d invest in Asia for the scale of opportunities there, as well as structural economic growth,” she said.
On a global scale, urbanisation growth in Europe looks small and weak.
Well-known European cities will be displaced in rankings by Asian cities, according to the projections.
However, cities such as London and Paris should not feel threatened by this trend, Breheny suggested, because of their heritage and culture, as well as their ability to attract talent.
“But they can’t afford to become complacent,” she added.
“They need to be very careful about the economies nipping at their toes.”