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How to Invest in the Cities That Will Rule the World

by Jonathan Adams
How to Invest in the Cities

We live in an increasingly urban world and the human migration towards towns and cities is set to continue to gather pace. A recent UN report estimates that the current 55% of us that live in an urban area will increase to almost 70% by 2050. An even stronger trend is the expansion of existing urban centres into ‘megacities’. In 1990 there were just 10 megacities in the world, a classification assigned to cities with a population of over 10 million inhabitants. There are now 33 and by 2030 that number is forecast to rise to 43.

The next step in urban development is the appearance of ‘meta cities’. Meta Cities are strongly interlinked conurbations that can be considered as a single, huge economic area of at least 20 million residents. Within the next few years Mumbai, Delhi, Mexico City, Sao Paulo, New York, Dhaka, Jakarta, Karachi and Lagos will all likely have become ‘meta cities’. The Tokyo metropolitan area as well as Beijing-Hebei-Tianjin, Hong Kong-Guangzhou-Shenzhen and Shanghai-Nanjing in China are already considered ‘meta city’ areas. The latter two areas are home to 25% of China’s population but generate almost half of its GDP.

The world’s economic growth is becoming increasingly centred around mega and meta cities. Increasingly, forward looking investors are adapting their long term strategy to tap into the economic growth of these cities over the next few decades. Property is the most obvious approach with investment properties providing a little slice of direct ownership of a city. However, with directly buying property around the world both hugely expensive and often just as complicated, indirect property investment through REITs or other kinds of property funds is probably the more realistic option. Hugo Machin, joint head of global real estate securities at asset manager Schroders was recently quoted in The Times as explaining his unit’s investment strategy as:

“Cities are the focal point of the global economy. If you want to participate in this growth, you should be putting money into the cities that are winning the race to attract companies and employees.”

“Mega cities will go meta as governments rush to link large cities and expand smaller ones. The result will be dense conurbations whose economic output is outsize relative to their hinterland and it makes sense to have a stake in them.”
When assessing city property markets for future growth, assets managers like Schroders analyse factors such as current population and its growth rate, GDP per head, retail sales, average disposable income, infrastructure and transport links, quality of public transport and the presence of universities.

Schroders has a global rankings index for cities. Its top 12 includes LA, London, Boston, Hong Kong, Beijing, Shanghai and San Francisco. Most of the index’s highest ranked cities are in the US, Western Europe and China though there are also entries from Australia, the Middle East, India and South America.

A handful of the funds that focus on properties in the world’s biggest cities available to those investing online in ISAs and SIPPs are:

  • Schroder Global Cities Real Estate
  • First State Listed Infrastructure
  • iShares Global Property Securities Index
  • First State Global Securities
  • Fidelity Global Properties

This article is for information purposes only.
Please remember that financial investments may rise or fall and past performance does not guarantee future performance in respect of income or capital growth; you may not get back the amount you invested.
There is no obligation to purchase anything but, if you decide to do so, you are strongly advised to consult a professional adviser before making any investment decisions.

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