The below infographic captures three megatrends that are the driving forces behind global real estate investment.
Three Megatrends Dominating Global Real Estate Investment
According to CBRE, the world’s largest real estate investment manager, the three trends driving the commercial real estate market can be summed up as the following:
There’s $1.1 trillion expected to flow into commercial real estate in 2016, and much of that money will be stemming from international sources.
World-class cities are seeing more outside capital for all types of real estate. Take London for example, where 60% of commercial real estate has been bought by international investors over the last 10 years.
How can investors make this trend their friend? By looking for opportunities to diversify real estate portfolios across a broader mix of geographies and asset types, and by thinking globally while developing strong knowledge of local markets before investing.
The world is shifting fast as far as demographics go.
Western countries will be welcoming many more retirees to their ranks. Meanwhile, the middle class in Asia will explode in growth. Once just 500 million people in 2009, it will be 3.3 billion by 2030 – accounting for roughly two-thirds of the global middle class.
Where will these people live?
Cities. About 50 megacities will account for the vast majority of economic activity. (See which megacities are growing the fastest here)
Look at investing in emerging markets that have a rapidly expanding middle class, and look for opportunities to capitalize on areas with large retiree populations.
Lastly, as technology becomes more ubiquitous, it will have an impact on real estate markets from several angles.
The amount of tech workers grew 61% between 2010 and 2013 among the top 15 urban centers. Also, driverless cars will also have widespread market penetration by 2029, and this will reshape and re-map entire communities.
Explore emerging technology hubs for real estate opportunities, and look for opportunities in urban-adjacent industrial properties as businesses establish distribution centers near cities to reduce the costs of delivery.
Ranked: The Cities With the Most Bubble Risk in Their Property Markets
Despite higher mortgages and sharply correcting prices, some cities’ property markets are still in bubble-risk territory.
Which Cities Have Bubble Risk in Their Property Markets?
Buoyed by low interest rates for the last decade, many property markets have seen substantial price growth since 2010. Experts warned that real estate bubbles—in which the price of assets moved up far beyond their intrinsic value—were forming.
The UBS Global Real Estate Bubble Index analyzes the real estate market of 25 major cities across the globe and assigns them a score between -0.5 to 2.0 to convey bubble risk. The higher the score, the more imbalanced the market is, with those above 1.5 in “bubble-risk” territory.
We visualize the data in the above map, along with charting the real property price changes in the last year.
Ranking Bubble Risk by City
At the top of UBS’ findings is Switzerland’s financial capital Zurich, with a 1.71 score, putting the city firmly in the bubble-risk zone. With its high-income earners and the country’s low interest rates, the city has been steadily climbing the real estate bubble-risk rankings, 5th in 2021, to 3rd in 2022, to the top spot this year.
Unlike many of its former peers in the risky territory, local prices adapted to increased mortgage rates this year, and have stayed elevated.
Here’s the full rankings for bubble risk in all 25 property markets:
|6||🇭🇰 Hong Kong||1.24||Overvalued|
|9||🇺🇸 Los Angeles||1.03||Overvalued|
|11||🇮🇱 Tel Aviv||0.93||Overvalued|
|18||🇺🇸 New York||0.47||Fair-Valued|
|22||🇺🇸 San Francisco||0.27||Fair-Valued|
|24||🇧🇷 São Paulo||0.09||Fair-Valued|
Tokyo (1.65) is the second and final entry in the real estate markets with immediate bubble risk. This is a decrease from nine total cities in that category last year.
In fact the other seven real estate markets which scored above 1.5 in 2022 have all seen significant real property price drops, many of them in the double-digits, which has moved them into “overvalued territory.”
These include: Frankfurt (-15.9%), Toronto (-14.7%), Amsterdam (-14.0%), Munich (-13.8%), Vancouver (-10.6%), Hong Kong (-7.1%), and Tel Aviv (-0.7%).
The key driver of these price drops across the board are the aggressive interest rate hikes to counter rising inflation, which pushed many housing markets into unaffordability, forcing sellers to lower their prices.
However, a few cities have seen real property price increases, including the aforementioned Tokyo and Zurich.
Here’s UBS’ full ranking of real property price changes between 2022–2023.
Price Growth (YoY)
|4||🇺🇸 New York||+3.2%|
|8||🇧🇷 São Paulo||+1.4%|
|10||🇮🇱 Tel Aviv||-0.7%|
|13||🇺🇸 Los Angeles||-3.7%|
|14||🇭🇰 Hong Kong||-7.1%|
|19||🇺🇸 San Francisco||-10.6%|
A significant outlier within this group, Dubai, has registered double-digit growth property price growth. This was fueled by expanding household incomes—thanks to an economic boom from oil prices—as well as increased immigration by wealthy individuals.
Ranked: Cities With Rising Rental Prices
However, even as property prices have cooled in the majority of the analyzed real estate market, the rental market for many cities, like Vancouver (+10.7%) and Toronto (+6.0%) has moved swiftly in the opposite direction.
In this case, inflation is a key reason as well—pushing up incomes, in turn leading to rising rents. Furthermore, owners-occupants with tenants seek to pass on higher mortgage costs in an effort to reduce their financial burden.
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