Cities Research Center I 2015 City Momentum Index
City Momentum Index, 2015 2 Tracking Speed of Change 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.
City Momentum Index, 2015 3 Key Highlights 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.
City Momentum Index, 2015 4 JLL City Momentum Index 2015 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Top 20 London San Jose Beijing Shenzhen Shanghai Ho Chi Minh City Boston Wuhan San Francisco Chongqing Sydney Bangalore Dubai Dublin Nairobi Melbourne Singapore New York Tianjin Nanjing JLL CMI includes: 10 areas 37 variables Property Prices Real Estate Investment Construction Corporate Activity Economic Output Environment Education Technology and R&D Connectivity Population 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
City Momentum Index, 2015 5 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 longterm 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. City Momentum Index 2015 Top 20 San Francisco San Jose Boston New York Dublin London Beijing Tianjin Nanjing Chongqing Dubai Wuhan Shanghai Shenzhen Bangalore Ho Chi Minh City Nairobi Singapore Melbourne Sydney Source: JLL, January 2015
City Momentum Index, 2015 6 Future Momentum 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. City Coverage 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 North America 31 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 Latin America 8 Mexico City, Monterrey Lima, Bogota Sao Paulo, Rio de Janeiro Santiago, Buenos Aires EMEA 47 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 Asia Pacific 34 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 Source: JLL, January 2015
City Momentum Index, 2015 7 Technical Notes 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 longerterm 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 Socio-economic Momentum Economic Output Population Air Connectivity Fortune 2000 HQs Foreign Direct Investment Commercial Real Estate Momentum Construction, Absorption, Price Investment Transactions Transparency High-value incubators Higher Education Infrastructure Innovation Capability International Patent Applications Technology / Venture Capital Environmental Quality Short-term Momentum High-value incubators City Momentum Index Source: JLL, January 2015
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