Fund manager Hugo Machin explains the trends behind the latest moves in the Schroders Global Cities index
Chinese cities had a strong showing in the first Schroders Global Cities 30 index, launched in the summer. In the first update to the index, that dominance has only increased.
Four of the top five spots are now Chinese cities with Beijing the new number one, pushing Shanghai, China’s most populous city with 22 million residents, into second place.
Shenzhen rose from sixth place to third and Tianjin, China’s third largest city, moved from third to fourth place.
The Schroders Global Cities 30 index is the result of our research into what makes a city most attractive for those looking to invest in listed real estate, playing on the idea that winning cities share common factors.
The “ideal” global city will have:
- High projected growth
- A growing population
- Excellent infrastructure
- Skilled workers with high disposable incomes
- Top universities
These factors combine to make cities attractive places to live with diverse cultural and leisure activities.
How did the rest of the world fare?
While China certainly dominated, North America also featured heavily in the index, taking 17 of the 30 places. New York, which was ranked second in August’s publication, took fifth place in the latest index just ahead of Los Angeles (6), Dallas (7), Houston (9), Chicago (10) and Washington (11).
New York’s move to fifth is not due to a downgrade of New York but more of an upgrade in the growth of Chinese cities. The only place the Chinese cities really fell down was in their prospects for disposable income for the working population.
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In August, the team focused on Why London Remains a Global City Post-Brexit and this still holds true. In fact, it has moved two places to take 8th position (from 10th). London remains one of our favoured cities due to its highly skilled workforce, large tourist demand and cultural appeal. We believe it will continue to thrive.
A bull in the China shop?
Much has been reported on the recent bull market in Chinese property and the supply available is certainly a key consideration.
The way we construct the index focuses more on determining demand trends and it's not until we get into the detail of assessing individual real estate companies that supply is fully considered. Excess supply of course has a negative impact on the company's ability to charge rents.
Supply is certainly a key factor though, particularly when it comes to China. Many of the cities are difficult for individuals to access by investing directly, but there are other ways to access the cities (Hong Kong listed real estate companies for example).
We think the Chinese mega-cities will become an increasingly important place for real estate investment in the coming years. Hong Kong listed companies own real estate in China and that is a good way of getting some exposure for investors. We see the rapid growth and urbanisation of the top-ranked Chinese global cities as a growing trend.
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