PIE Article February 2019 – Guest Column by Jason Oram, partner at Europa Capital.
Understanding how the built environment must adapt to accommodate urbanisation-led social and economic changes is now fundamental to making successful real estate investment decisions. Cities are the centres of the built environment and have always been important to the real estate industry, but it appears that their place in society and as a magnet for people is becoming increasingly strong and having a profound impact on the way we live and work.
Europa Capital in partnership with Oxford Economics has recently completed research into the drivers of European urbanisation and how it will be impacting Europe’s built environment through to 2030, which raised some interesting trends.
The initial research featured 125 cities of which we selected 20 as particularly exemplifying the influence of urbanisation on the economic fortunes of the countries in which they are located.
One fact that is often misunderstood is that social and economic growth from urbanisation across Europe is often in stark contrast to largely anaemic wider national and European Union (EU) forecasts. The population of the EU is projected to grow by just 2.0% between 2015 and 2030, but many cities will grow at a rate many times this figure, with cities in the UK, Germany and the Nordics projected to grow the most. That Copenhagen is expected to grow by 22%, Munich 19% and Manchester 16% illustrates this point perfectly.
The 20 cities selected by Europa Capital will represent over half of all EU population growth between 2015 and 2030 while the gravitational pull of what are already the largest cities will be the most significant, with London and Paris urbanising by an incredible 2.1 million people. Germany has some of the fastest accelerating rates of urbanisation and this is apparent across all its key urban areas, with Berlin contributing the greatest number at over 440,000 people.
Urbanisation is central to the success of wider national economies because of the employment it generates through job creation, as employers fight the war for talent and locate themselves accordingly. In turn, this drives household formation, creates an influx of young affluent people, and increases consumer spending.
Employment figures will also improve disproportionately from 2015 to 2030 in Europa Capital’s selected cities with job creation projected to be two and three times the 7% projected across the EU as a whole. Interestingly, it is those cities with lower unemployment that will see the greatest levels of urbanisation-led job creation and, while London and Paris dominate, the Spanish cities of Madrid and Barcelona, which are projected to have limited levels of urbanisation, will also contribute meaningfully to job creation by absorbing existing unemployment.
Jobs in the tech sectors will deliver impressive growth, with more than 330,000 new jobs projected by 2030 within the four largest cities in Europe: London, Paris, Madrid and Berlin.
The demand for office space generated by the growth in job creation needs to be considered within a real estate market already characterised by historically low office vacancy rates in most European cities. Whilst this supply shortage will be an important driver of office rental growth, the fast-changing way in which businesses occupy office space, and the way they utilise new technology, will require the real estate industry to deliver the right type of office space to suit tomorrow’s office occupiers.
Urbanisation is also having a profound impact on the way in which we live and, again, the number of households being generated in many of Europe’s cities is a multiple of the 6% that will be generated by the EU by 2030.
The cities that will grow the fastest are again found in the UK, Germany and Nordics, but Dublin, Brussels and Amsterdam also feature prominently. However, all cities are experiencing changes in the way residents want to occupy their homes, which is leading to increased levels of rented accommodation and demand for ‘life-style’ buildings, which in turn is driving institutional investment activity into what remains an undersupplied sector.
The era of real estate needing to satisfy the demands of a car based population seeking refuge in out of town business parks and shopping centres is behind us. The requirements of the ‘sharing’ and ‘experience’ economies of today, and in particular tomorrow, will encourage us to live and work in ever greater proximity to one another and this will be reflected in both how real estate is developed, how technology is incorporated, and ultimately, where capital is allocated
Real estate is local, and there will always be national distinctions, but investors now need to look deeper and analyse the drivers of change within the fabric of Europe’s cities, as opportunities are not country-centric, but are city-centric, and the key is urbanisation.
Jason Oram
Partner
Europa Capital LLP
