‘Smart cities’ that are the most responsive to the challenges of urbanisation will lead a new global megatrend in real estate, according to new research by Savills Investment Management (“Savills IM”), the international real estate investment manager. 

In a new paper, ‘Megatrends – Urbanisation is changing the drivers of real estate’, Savills IM argues that real estate investors are increasingly focusing on cities rather than countries as more people are drawn to living and working in central areas. 


While the populations of several European countries, such as Germany, Greece, Spain, Portugal and some Eastern countries, are projected to shrink over the coming decades, largely due to ageing populations and declining birth rates, most of Europe’s largest cities are expected to grow. The paper also highlights the projected growth in the number of ‘megacities’ with populations exceeding 10 million people - from 28 in 2014 to an estimated 41 by 2030, of which 25 will be located in Asia. 


However, Savills IM believes that investors should look beyond simply targeting growing urban areas by identifying ‘smart cities’ that are effectively dealing with the challenges of urbanisation by creating new infrastructure or implementing favourable laws and regulation. It cites London’s Crossrail and Grand Paris in Paris as examples of where new transport infrastructure will reduce journey times for people living on the fringe of each city and will impact positively on property markets. It also highlights Singapore as a megacity that has successfully met the rising challenges of urbanisation by combining a high density population with high liveability through extensive investment in public transport, low environmental impact buildings and a large network of cycling paths and pedestrian walkways. 


Savills IM also alerts investors to the possible future potential offered by several smaller “smart” cities, which are based around world-renowned universities and benefit from knowledge and business synergies. Examples of these include Lyon (life sciences, chemicals), Toulouse (aerospace), Malmö (life sciences/IT), Karlsruhe (TMT/R&D) and Seattle (TMT). 


The paper identifies the following locations and asset types as best placed to benefit from the urbanisation trend: 


  • Mixed use locations: the combination of rising density and changing urban lifestyle preferences is increasing the attraction of mixed use areas. Generation Y wants more amenities and leisure opportunities near to where they live and work. Mixed use areas with housing, offices,  retail and good access to public transport are, therefore, increasingly sought by occupiers that want to cater to the changing lifestyle aspirations of their customers or employees 
  • Fringe of office CBDs: the combination of the scarcity and increasing cost of space in Central Business Districts (CBDs) with the rise of the New Economy and changing lifestyle preferences is resulting in new technology quarters located on the edge of CBDs. These frequently offer cheaper space to occupiers and rental and capital value upside potential to investors. This new trend is extending the definition of ‘core’ locations and highlights the growing importance of TMT tenants 
  • Retail: increasing occupier demand and investor competition for the best retail locations (such as Paris Champs Élysées, London Oxford Street and New York Fifth Avenue) are leading to the emergence of global retail cities, resulting in scarcity of Grade A product, pushing rents up and yields down 
  • Residential markets: the increasing size and density of cities is putting pressure on residential prices and supply, impacting on affordability and resulting in an increasing number of residential towers, such as Frankfurt’s 21-storey Westside Tower and London’s 50-storey St George Wharf Tower. Occupiers’ prioritisation of a city centre location over the size of their accommodation is also resulting in the emergence of ultra-compact and optimised flats in some cities. Residential development and the private-rented sector are also big winners of urbanisation.

Vanessa Moleiro, Research Analyst at Savills IM, commented:

“Urbanisation is having a profound impact on the real estate sector and from this we have identified clear winners and losers that will drive returns for our investors over the coming years. Fast-growing cities may catch the investor’s eye but it’s the smart cities that put in place the infrastructure and innovative environment necessary to create sustainable development that will enjoy long-term success. The success achieved by several smaller cities also shows that when it comes to investment prospects, size isn’t everything.” 


Citigate Dewe Rogerson

Patrick Evans / Stephen Sheppard / James Madsen / Alice Stewart


Tel: +44 (0)20 7282 2966

E: savillsim@citigatedr.co.uk


  • 02 December 2015