Real Estate Investor Magazine South Africa June 2018 | Page 49

URBAN
looking to live in cities are looking for more than a roof over
their heads. Strong cities attract strong companies, which in
turn attract innovation and advancement. Any city that hopes
to be successful would need to cater to every class, not just
the CEOs.
Rethinking living and working
Discussing the impact of technology on real estate, Walker
highlights the fact that investors need to look for areas that
will always be relevant: “While it may be more expensive to
invest in these areas, you’re guaranteed healthy returns in the
long run.”
At the same time, investors would be wise to pay atten-
tion to shifting trends in residential and commercial property.
Traditional offices and apartments may still be with us today,
but the market is changing. Players like WeWork - who have
recently launched WeLive - epitomise this. Shared offices and
even shared accomodation is becoming increasingly attractive
to the younger workforce.
Referencing the term The Affordability Puzzle, Walker ex-
plains that many young professionals find it to be worthwhile
to move to larger, more expensive cities, that enable them to
work for large companies that will offer them room to grow.
Young professionals are increasingly willing to give up short-
term comforts in exchange for long term opportunities. And
these are in abundance in large cities. Investing in a city that
has this in mind, and caters for this market with relevant solu-
tions, will be a safer option.
The final crucial aspect of a global city is its education.
Global giants like Amazon place a premium on locations that
offer them a highly educated and innovate workforce. Invest-
ing in a city that houses world class universities means you’re
placing yourself and your investment property at the centre of
growth and a solid long term option.
A diverse and resilient city
Brexit left many investors panicked about their property in
London. Walker explains, however, that any decent global city
is home to a diverse local economy: “Finance is just one part
of a city’s economy. There’s so much else going on, from tech-
nology to media and education. We don’t want to be invested
in a city that’s only focused on one sector. That leaves investors
vulnerable.”
Similarly, Walker emphasises the fact that investors are typ-
ically safer in large, thriving cities. “During a recession, global
cities will still be affected, of course. But we find that there’s
still industry going on, and the economy is still working. We
look for cities that are more likely to withstand global financial
crises.”
Smart cities
The idea of a smart city is exciting - with images of seamless
transport and intuitive buildings coming to mind. In reality,
however, these things are near-impossible to incorporate in
existing cities. Instead, Walker says, we’ll see incremental im-
provements to current infrastructure. As more and more de-
velopments incorporate features like green energy and smart
technology, we’ll see a gradual move towards smarter and more
futuristic realities.
One aspect of a city that deserves immediate attention is
its readiness to handle climate change. On a local level, Cape
Town has had to endure a crippling drought that forced busi-
nesses and residents to rethink how they consume water. Glob-
ally, cities like Houston had to deal with an increased num-
ber of hurricanes and subsequent flooding. This brought the
importance of urban planning to the foreground, with many
criticising the fact that houses were built on the floodplain.
As investors, it’s crucial to take note of a city’s ability to
cope with changing weather and extreme patterns. This be-
comes even more important when looking at affordable hous-
ing, a sector that’s oftentimes sidelined and developed more
vulnerable areas.
Investing in a real estate fund
Finally, we look at the opportunity for investors to get into in-
ner-city investments around the world without the direct risks
of investing in physical property. Walker list three main things
to look for when choosing a fund: “We look for funds that
invest in key cities. If they don’t they run the risk of becoming
irrelevant. We particularly like cities that have limitations as to
how much can be built. Any place where there is tension in the
market is good for investment.
“Next, we look for a company that has a management team
that owns significant shares in the company. We want a fund
that’s truly invested in the performance of the company. Fi-
nally, we look for a company that has low levels of debt. We
like to plan as if the next financial crisis will hit this afternoon
- you need to be invested in a fund that has a better chance of
withstanding that.”
The takeaway
As with any real estate investment, it’s crucial to do your re-
search. When looking for a city to invest in, focus on the key
aspects of education, transport, and innovation. Without these
ingredients, you run the risk of being stuck in an area that
either shows no growth, or becomes entirely irrelevant.
LONDON’S CROSSRAIL PROJECT IN
NUMBERS
Crossrail Limited is building the Elizabeth line
- a new railway for London and the South East,
running from Reading and Heathrow in the west,
through 42km of new tunnels under London to
Shenfield and Abbey Wood in the east.
Crossrail will bring an extra 1.5 million people to
within 45 minutes of central London and will link
London’s key employment, leisure and business
districts.
The Elizabeth line will transform rail transport in
London and the south east, increasing central
London rail capacity by 10% - the largest increase
since World War 2.
Research undertaken by property consultants GVA
shows that from 2008 to 2013, 41% of planning
applications within a kilometre of a Crossrail
station cited the new railway as a justification for
the development proceeding, equating to around
3 million square feet of residential, commercial and
retail space.
Commercial office values around Crossrail stations
in central London will increase over the next de-
cade, with an uplift of 10 per cent in capital value
above an already rising baseline projection.
Residential capital values are projected to increase
immediately around Crossrail stations in central
London by 25 per cent, and by 20 per cent in the
suburbs, again above a rising baseline projection.
SA Real Estate Investor Magazine JUNE/JULY 2018
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