Five new cities, each the size of Los Angeles, will need to be built every year for the next five years to accommodate the expected 380 million new city dwellers, according to Global Cities : The 2016 Report published today by Knight Frank.
This increased urbanisation, combined with greater demand and low vacancy rates, will cause office rents to rise in the key global cities. Knight Frank forecasts that rents in Madrid will increase by more than 22 per cent by 2018, followed closely by Mumbai (21.3 per cent) and San Francisco (20.2 per cent).
James Roberts, chief economist, Knight Frank commented: “Of the global cities, we are forecasting Madrid, which is rebounding from the euro crisis years, to see the strongest office rental growth to 2018. The city centre has become undersupplied due to developers hitting the brakes during the euro crisis, only to see demand recover in the last two years.
“San Francisco, with its burgeoning tech economy, is predicted to see the highest rental growth in the Americas – over 20 per cent in the next three years. Tech firms are expanding in the city centre in preference to Silicon Valley and this has created tight supply for real estate.
“Mumbai and Bengaluru, are in the top five for rental growth, despite being emerging markets. This is because India is actually on the right side of the trends that are acting against other emerging markets. India has big IT and outsourcing companies, which sell services to major western corporations.”
Jeremy Waters, head of international capital markets commented: “We expect advanced industrial nations to drive the global economy in the next three years; with the global cities in those nations offering the strongest opportunities for real estate investors.
“With the US moving closer to a rate rise, the dollar is strong, and American private equity investors are already buying more stock overseas. We see this trend accelerating in 2016. They tend to be more comfortable with a higher risk profile, so we expect increased interest in sites and short income assets.
“In Europe, thanks to low bond yields and signs of economic turnaround, we are predicting more opportunist money will come into the market.
“In general, we see investors casting the net wider, with specialist property rising up the agenda. In part, this reflects a growing desire to seek diversity in a portfolio.“
Matt Phillips, managing partner of the Cardiff office of Knight Frank said: “This global pressure for increased city living, and the need for more office space as a result, is reflected here in Cardiff, which is currently enjoying a huge uplift in popularity thanks to the many positives it now offers.
“The recent announcement of the £400m investment in Central Square by Legal and General is the latest evidence of Cardiff’s attractiveness to others in the UK and further afield.
“The Welsh government and Cardiff Council are to be congratulated for the vision and leadership they have shown in helping to bring Cardiff to its current status as one of the Top 10 Cities in the UK. It is vital that this clear leadership continues, and delivers the infrastructure improvements that Cardiff and the capital city region will need as they continue to grow. This includes the connectivity improvements of the M4 relief road, rail electrification and South Wales Metro programmes.”