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City Momentum IndexCities Research Center I 2015

City Momentum Index, 2015 2 JLL

This is JLL’s second annual City Momentum Index (CMI), which tracks the speed of change of a city’s economic base and its commercial real estate market.

Covering 120 major established and emerging business hubs across the globe, the Index gauges a city’s short-term socio-economic and commercial real estate momentum (over a three-year horizon) in combination with measures of ‘future-proofing’ – whether a city has the essential ingredients to ensure longer-term sustainable momentum in terms of education, innovation and environment.

The Index is unique in that it captures the dynamics of a city’s real estate market – its rates of construction and absorption, price movement and the attraction of a city’s built environment for cross-border capital.

In producing this Index, JLL’s intention is to alert the market to signals of change and to highlight the characteristics of city success. It does not necessarily hold that those cities at the top of the CMI will provide the strongest future performance of commercial real estate, or the most immediately attractive real estate investment environments, but rather that they are the cities where change is occurring fastest and are the ones to be closely monitored. Strong momentum can pose both opportunity and risk.

In this paper we identify the characteristics of those 20 cities at the top of the CMI 2015. We also explore some of the cities that haven’t ‘made the cut’.

Tracking Speed of Change



The Top 20 cities in the CMI 2015 reveal that:

• The technology sector continues to be a major driver of city momentum across the globe as the tech giants and start-ups invest in new technologies and infrastructure and generate jobs. Several of the world’s most technology-rich cities appear in the Top 20 – including San Jose (Silicon Valley), Boston, San Francisco and Bangalore (Bengaluru). Technology is also an important factor in helping to boost the positions of cities such as London, New York, Sydney and Dublin, as well as China’s premier technology hubs – Beijing and Shenzhen.

• Despite economic slowdown, China is still home to some of the world’s most dynamic cities – and seven appear in the Top 20. Shanghai, Nanjing, Wuhan and Chongqing form a corridor of strong momentum along the Yangtze River, while the emerging megacity of Beijing-Tianjin in the north is showing high levels of dynamism. Shenzhen in the Pearl River Delta has found renewed energy on the back of its technology sector and neighbouring Guangzhou features just outside the Top 20.

• London tops this year’s CMI 2015 as a result of robust economic fundamentals, further boosted by large volumes of cross-border real estate investment and a positive outlook for commercial property prices. London also continues to cement its reputation as a global tech hub. It is joined in the Top 20 by Dublin, which has registered the world’s fastest growth in office rents over the past year.

Key Highlights


• Ho Chi Minh City is the biggest improver in the CMI 2015 and makes it into the Top 20 off the back of strong FDI, as companies look beyond China as a base for manufacturing. Construction levels are high, although growth rates are exaggerated by the small size of the existing commercial real estate market.

• Sydney and Melbourne have also improved markedly and are new entrants into the Top 20. The residential property sector is leading commercial property into upswing, while the technology sector is providing an unexpected boost to economic growth, particularly in Sydney.

• U.S. cities are largely represented in the Top 20 by technology-driven cities such as San Jose (Silicon Valley), Boston and San Francisco. Silicon Valley, as the global hub of the high-tech venture capital industry, sits in second position in CMI 2015, and San Francisco and Boston have been helped by strong growth in property investment during 2014. Creative TAMI (technology, advertising, media and information) sectors are underpinning New York’s position in the Top 20, while the technology and creative hubs of Austin, Seattle, Los Angeles and San Diego appear just outside the Top 20.

• Sub-Saharan Africa makes its debut in the Top 20, represented by Nairobi. As a regional base for global corporations expanding into Africa and as the continent’s top technology city (‘Silicon Savannah’), Nairobi is witnessing high levels of property construction, its rental markets are buoyant and real estate transparency is improving. The city has also emerged as an important hub for the continent’s rapidly growing air transport network.

• Bangalore (Bengaluru) provides India’s first appearance in the Top 20. Robust demand for commercial space from the technology sector and associated IT-enabled services is boosting office rents. While outside the Top 20, Delhi and Mumbai are beginning to see an increase in momentum as economic growth picks up and demand for prime office space strengthens.

Source: JLL, January 2015

London

Nanjing Tianjin

San Jose Beijing Shenzhen Shanghai Ho Chi Minh City Boston Wuhan San Francisco Chongqing Sydney Bangalore Dubai Dublin Nairobi Melbourne Singapore New York

1

20 19

2 3 4 5 6 7 8 9

10 11 12 13 14 15 16 17 18

JLL CMI includes: 10 areas | 37 variables

JLL City Momentum Index 2015

Property PricesReal Estate InvestmentConstructionCorporate ActivityEconomic OutputEnvironmentEducationTechnology and R&DConnectivityPopulation

Top 20


City Momentum Index 2015 – Top 20


San Jose Boston

Sydney

Singapore

Chongqing Dubai

New York

London

Shanghai

Shenzhen

Nanjing

Wuhan

Beijing Tianjin

Nairobi

Dublin

Bangalore Ho Chi Minh City

San Francisco

Melbourne

• Dubai remains in the Top 20, although its rank has dropped as growth in commercial real estate prices moderates to more sustainable levels. Momentum is expected to continue with activity bolstered by major project spending relating to Dubai hosting the World Expo 2020.

• Hong Kong and Singapore have recorded a decline in their CMI positions, due to a weaker outlook for their commercial real estate markets, which, in the case of Hong Kong, has been sufficient to push it temporarily out of the Top 20. Nonetheless, the two cities still feature strongly on socio-economic momentum and long-term fundamentals.

• Tokyo has also fallen just outside the Top 20. Economic momentum waned in 2014, but Tokyo is a city with newfound energy and its commercial property market remains buoyant. We expect it to return to the Top 20 in future CMIs as momentum builds in preparation for the 2020 Olympics.

• Continental European cities are, once again, notable by their absence in the top ranks of the Index. Even so, they continue to score impressively on long-term fundamentals, with the Dutch Randstad cities, Munich, Paris, Berlin and the Nordic capitals of Copenhagen, Helsinki and Stockholm performing well on education, innovation and environment measures.


The 120 cities covered by the City Momentum Index have been shortlisted on the basis of a combination of a weighted index of population, GDP, corporate presence, air connectivity, real estate investment activity and commercial real estate stock. Each city is defined as its metropolitan region as delineated by national statistical offices or by international organisations (e.g. United Nations).

120 Cities Covered by the Momentum Index

City Coverage


Vancouver, Calgary, Toronto, Montreal Washington DC, Baltimore, Philadelphia, New York, Pittsburgh, Boston

Minneapolis, Chicago, St Louis, Detroit Charlotte, Atlanta, Orlando, Miami, Tampa Denver, Austin, Dallas, Houston Las Vegas, Phoenix

Seattle, Portland, San Francisco, San Jose, Los Angeles, San Diego

North America 31

Mexico City, Monterrey Lima, Bogota Sao Paulo, Rio de Janeiro

Santiago, Buenos Aires

Latin America 8

Oslo, Stockholm, Copenhagen, Helsinki Dublin, Glasgow, Edinburgh, Manchester, Birmingham, London

Brussels, Randstad, Paris, Lyon Hamburg, Berlin, Dusseldorf, Cologne, Frankfurt, Stuttgart, Munich, Zurich, Vienna Lisbon, Madrid, Barcelona

Milan, Rome, Athens Prague, Budapest, Warsaw, Bucharest, Kiev, Moscow, St Petersburg Istanbul Abu Dhabi, Dubai, Jeddah, Riyadh

Casablanca, Cairo Cape Town, Johannesburg Lagos, Nairobi

EMEA 47 Seoul, Osaka, Tokyo Beijing, Tianjin, Shanghai, Chengdu, Wuhan, Guangzhou, Shenzhen, Chongqing, Nanjing, Xian, Shenyang

Hong Kong, Taipei Delhi, Kolkata, Mumbai, Hyderabad, Bangalore, Chennai

Bangkok, Ho Chi Minh City, Hanoi, Kuala Lumpur, Singapore, Jakarta, Manila

Perth, Brisbane, Melbourne, Sydney, Auckland

Asia Pacific 34

Having strong momentum presents cities with opportunities as well as risks. While the City Momentum Index highlights a city’s speed of change, it doesn’t guarantee the future performance of commercial real estate or identify the hottest investment markets. Many cities with strong momentum are currently facing issues of affordability and shortages of available real estate, while broader problems of congestion, social inequalities and environmental issues can often be magnified in cities with rapid change.

Equally other cities that have slower momentum, powerful and prosperous cities such as Berlin, Chicago, Paris, Randstad and Tokyo (that currently sit outside the Top 20), have the ingredients of longer term success with a combination of strong governance, a world-class infrastructure and a robust innovation economy. These will be the cities to watch as they leverage their strengths to ascend to new heights in the City Momentum Index.

Future Momentum


The City Momentum Index presents a weighted overall score for the sub-scores of 37 variables. For each variable, the model calculates a score based on the city’s performance relative to the distribution of all 120 city regions, scaled from zero to one. Thus the top-scoring city for each variable has a value of one, while the lowest-scoring city receives a value of zero. The variables used in the model are summarised in the chart below, combining variables of short-term socio-economic and commercial real estate momentum with variables measuring longer-term potential – the ‘high-value incubators’.

Socio-economic momentum (accounting for 40% of the model) includes variables relating to the recent percentage changes in city GDP, population, air passengers and corporate headquarter presence, projected percentages changes in GDP and population, and recent levels of foreign direct investment (as a proportion of a city’s economy).

Commercial real estate momentum (accounting for 30% of the model) includes variables relating to recent and projected percentage changes in office net absorption, office construction, office rents, shopping mall construction and retail rents. This sub-index also includes recent changes in direct commercial real estate investment volumes and real estate transparency.

High-value incubators (accounting for 30% of the model) have been included, as future economic strength and real estate momentum over the longer term are likely to be partially determined by the quality of a city’s education infrastructure, its innovation capability, environmental sustainability and the strength of its technology sector. This sub-index includes a weighted score of the presence of the world’s top universities, international patent applications, air quality, third-party indices of the innovation economy, and the presence of technology and venture capital firms.

Data sources: All real estate data for the City Momentum Index is sourced to JLL. The non-real estate data is drawn from a wide range of sources that includes Oxford Economics, United Nations, ACI, OECD, WHO, GaWC, fDi Markets, QS, 2thinknow, WHO and Crunchbase. The Index also draws data from many national statistical offices.

Data comparability and accuracy: The CMI model is based upon data which we believe to be reliable. While every effort has been made to ensure the accuracy and completeness of the data used, we cannot offer any warranty that factual errors may not occur. For the vast majority of cities and variables, data relating to the city region has been used, but in a few cases, particularly in emerging markets, we have had to rely on national data.

The City Momentum Index Model

Technical Notes


Higher Education Infrastructure Innovation Capability

International Patent Applications Technology / Venture Capital

Environmental Quality

High-value incubators

Short-term Momentum

Construction, Absorption, Price Investment Transactions

Transparency

Commercial Real Estate Momentum

Economic Output Population

Air Connectivity Fortune 2000 HQs

Foreign Direct Investment

City Momentum Index

Socio-economic Momentum

High-value incubators

COPYRIGHT © JONES LANG LASALLE IP, INC. 2015.This report has been prepared solely for information purposes and does not necessarily purport to be a complete analysis of the topics discussed, which are inherently unpredictable. It has been based on sources we believe to be reliable, but we have not independently verified those sources and we do not guarantee that the information in the report is accurate or complete. Any views expressed in the report reflect our judgment at this date and are subject to change without notice. Statements that are forward-looking involve known and unknown risks and uncertainties that may cause future realities to be materially different from those implied by such forward-looking statements. Advice we give to clients in particular situations may differ from the views expressed in this report. No investment or other business decisions should be made based solely on the views expressed in this report

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Authors

Jeremy [email protected]

Rosemary [email protected]

Matthew [email protected]

Ben Breslau [email protected]

Andrew Burrell [email protected]

Josh Gelormini [email protected]

Craig Plumb [email protected]

Contributing Authors

David Green-Morgan [email protected]

Myles Huang [email protected]

Jane Murray [email protected]

To learn more about cities and real estate visit our websitewww.jll.com/cities-research

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