Nick Whitten is Head of UK Residential and Living Research at JLL.
Deciding where to buy an overseas home can be a daunting task — after all, there is a whole world out there. Many international home purchases revolve around three considerations. The first is lifestyle: the home may offer access to desirable factors such as exclusive shops and restaurants or a wonderful climate. The second is geographical diversification: the home could provide access to a new market or currency. These two factors depend entirely on an investor’s current circumstances. The third is returns: the home must be in a market with a demonstrable track record of strong house price growth or a solid rental profile. This is where strategy comes into play.
Understanding the strategy of big global institutional capital is a smart tactic for identifying where to invest. JLL’s latest Innovation Geographies research explored the innovation and talent attributes of more than 100 cities around the world, and the findings shed some light on where global institutional capital will target next.
The research shows that cities that outperform on innovation and talent measures are best positioned to record the strongest economic recoveries in the coming years. It also demonstrates a powerful link between innovation and talent ecosystems and real estate performance.
As we move into the next cycle of recovery from the Covid-19 pandemic, now is the time to look at destinations that offer long-term resilience. Understanding the innovation and talent trajectory of cities is the key to identifying the strongest growth markets. JLL’s Innovation Geographies research identifies six main categories: Global Leaders, Talent Rich, Innovation Centric, Emerging Innovators, Skilled Centres, and Local Hubs.
The Global Leaders are standout performers in terms of innovation and talent, and they are expected to maintain their lead over the long term. Cities included in this category are the likes of Beijing, London, New York, Paris, San Francisco, and Tokyo. London in particular is in a strong position to see price and rental growth outperformance, after a dampening of activity in recent years due to both Brexit and Covid-19.
JLL forecasts that London’s prime housing market will see particularly strong activity over the next 24 months. This is based on an anticipated return in travel from the world’s high-net-worth individuals and on an acute undersupply of homes for sale or rent in the UK Capital’s most exclusive neighborhoods. We expect housing prices in exclusive prime central London residential areas to rise by an average of 7.5% in 2022 and 5% in 2023. Meanwhile, rental value growth is forecast to be 6% in 2022 and 3.5% in 2023.
There remains a great source of debate: town versus country, which provides a better quality of life? The Covid-19 pandemic triggered a boost in demand for the things we typically associate with rural living, causing strong house price growth outside towns and cities across most of the developed world. However, the pandemic has also created an opportunity to bring the best of both worlds together. Demand has now bounced back for cities, particularly in areas that offer a village feel.
Certain cities in Spain and Portugal — both of which rank in the top five in the Best Investment Migration Real Estate Index — can be considered as models for this concept. Cities on the Iberian peninsula are typically built up as collections of villages, each with its own central square boasting a distinct identity and imparting a sense of community. JLL’s Innovation Geographies features Barcelona, Madrid, Seville, and Valencia in Spain as well as Lisbon in Portugal.
Shifting living priorities have re-emphasized the desire for vibrant, social, and attractive communities in which to live. Having elements of rural life in urban villages, with a combination of green spaces, outdoor markets, shops, cafes, and restaurants has been proven to enhance community cohesion and improve the well-being of those living there. These urban villages have the strongest investment growth potential.
The climate crisis remains the biggest issue on the global agenda. JLL expects that over the next five years there will be an increase in demand for more energy-efficient, lower carbon, sustainable homes. Analysis of approximately 20 million homes in England and Wales on the Energy Performance Certificate (EPC) Register shows that newer homes built since 2007 emit up to three times less carbon per square meter compared to homes built before 1930. The data also shows that urban homes emit lower carbon emissions per floor area than rural homes, no matter the age of the home. As the threat of Covid subsides, identifying desirable new homes in talent-rich, innovative cities appears to be the most resilient investment choice.