ShareAccording to the United Nations, the world’s urban population is expected to increase by 380 million people by 2020. Pause for a moment and consider what 380 million more urban dwellers means. As Knight Frank points out, that’s the equivalent of building five cities the size of Los Angeles every year between now and 2020, plus all the supporting infrastructure.
That level of growth would trigger a huge demand for every type of urban real estate, from the development of housing, offices, warehouses, manufacturing and distribution facilities, shopping centers, restaurants, hotels, entertainment venues, roads, parking, plus all the infrastructure for transportation, energy, water, sanitation, etc.
Planning for such growth, however, also presents huge challenges. Success requires identifying the best investments over the long term (while also eliminating wasteful practices), then carefully planning each step in the process. It takes patience, tenacity, and long-range vision. It’s not unlike tackling a complex real estate development project.
Cities with strong links to the global economy will have a distinct advantage over those that take a more insular view. If a city examines its unique competitive advantages, then implements policies that attract additional global trade and investment, it’s inevitable that even second-tier players will become “global cities.”
Best Practices
As urban planners, government policy-makers, investors, and real estate developers work together to shape our future cities, what are some of their most important considerations? According to Hugh Kelly, a Clinical Professor of Real Estate at the NYU Schack Institute of Real Estate and 2014 Chair of the Board for the Counselors of Real Estate (CRE), they include:
Cities vs. suburbs
Economic growth should not be a matter of urban centers prevailing over their suburban communities, or vice versa. As Kelly points out in his new book, 24-Hour Cities: Real Investment Performance, Not Just Promises, the most vibrant urban areas are those with a strong core and strong suburbs.
“It’s not a zero sum game,” says Kelly. “Incomes earned from high-paying jobs in the city are spent throughout the region.” In some cases, like San Francisco, the flow between home and work may be reversed. Adobe, for example, funds employees’ commuting costs to Palo Alto if they prefer living in downtown San Francisco, while Google runs its own shuttle buses.
Transportation
Cities must constantly reinvest in their transportation infrastructure—and the cost could spike dramatically as driverless cars enter the scene, potentially requiring a complete overhaul of our roadways (adding sensors, monitors, etc.) and introducing new density problems (parking spaces for more idle cars).
“While the technology is exciting, I don’t think the costs associated with autonomous cars have been fully penciled out,” says Kelly. “Like any large infrastructure project, this will take longer and cost much more than expected, especially in urban settings.”
Affordable housing
Living in global cities is generally an expensive proposition, with affordable housing being the tallest hurdle. Solving the problem is not just a question of creating inventory, but also a matter of creating better opportunities for inhabitants to move up the income ladder. Too often, entry-level jobs are dead-end jobs (think hotel employees, construction workers, or security personnel).
Real estate is one industry that could make a direct contribution. In fact, Kelly imagines that “the real estate industry could easily put together a program that took 100,000 people and put them on an upward track, by promoting real estate as a career instead of a job.” In addition to fostering a spirit of giving back to the community, such an endeavor could make a measurable difference in economic and income growth. It is also in the employers’ interests in a period where unemployment is already down to five percent, with labor markets likely to be tightening as the boomers retire.
Solutions aren’t simple, but fortunately the world is also filled with thought leaders and innovators, working across geographic borders to share actionable ideas and collaborate on successful results.
Moving Cities Onto the Global Stage
Launched in 2012, the Global Cities Initiative (GCI) is a $10 million, five-year joint project of the Brookings Institution and JPMorgan Chase designed to help the leaders of U.S. metropolitan areas strengthen their economies and become more competitive in the global marketplace, while also fostering an international network of metropolitan leaders who are committed to trade, invest and grow together.
Twenty-eight U.S. metropolitan areas are engaged in in a two-phase planning process:
Phase 1 is a metropolitan export plan that helps regions cultivate a larger pipeline of export-ready firms and better connect them to export services and growing global markets.
Phase 2 is a foreign direct investment (FDI) plan that explores new forms of FDI, assesses the interaction of FDI and exports, and develops strategies to attract and retain investment.
Ultimately, each metro area produces its own market assessment, a global trade and investment plan (which is a roll-up of its export and FDI plans), an implementation plan, and a policy memo. Five cities (Columbus, Portland, San Antonio, San Diego and Seattle) have already completed unique global trade and investment plans, whereas the remaining 23 cities are at earlier stages. (See map.)
Real estate professionals can turn to the GCI plans for insights into emerging global opportunities in these markets. Specific strategies, tactics, and implementation steps are outlined, including the organizations involved in executing various initiatives related to attracting investment, building infrastructure, promoting innovation, and much more.1
Real estate plays a pivotal role in all these endeavors. Practitioners who get familiar with and involved in civic leaders’ efforts to build the global cities of the future are in an excellent position to participate in key networking opportunities and related real estate transactions.
To learn more about the Global Cities Initiative and access participating cities’ plans and related research, go to brookings. edu/about/projects/global-cities
Want to learn even more? Take a deeper dive
This article was originally published in the June 2016 edition of Global Perspectives, the official newsletter & benefit of the Certified International Property Specialist (CIPS) designation. To read the full issue, visit nar.realtor/ccglobalperspectives.
The CIPS designation provides the education, network, and resources to conduct international business transactions efficiently and effectively. The five days of study provide the information real estate professionals need to minimize risk when working with this lucrative investor group. Upon earning the designation, members join an influential network of nearly 3,000 elite professionals who turn to each other first when looking for referral partners. For more information on the CIPS designation, visit nar.realtor/commercialcips.
1Many participating cities are still in the planning stages and haven't published export or FDI reports yet. Still, an online search for "Global Cities Initiative [City Name]" will likely return detailed results related to that city's efforts.