By: Tom Walker, Co-Head of Global Listed Real Assets at Schroders

The 31^st October marks the UN’s World Cities Day, a day earmarked to promote international cooperation in the creation of urban areas that are not only engines of growth, but beacons of sustainability, resilience, and prosperity for all.

Cities already generate more than 80% of world GDP and the real estate within them consistently outperforms national averages. With urban migration set to increase, and the global rate cutting cycle well under way, global cities will be the lifeblood of economic growth.

This is according to Tom Walker, Co-Head of Global Listed Real Assets at global investment manager Schroders, who says they have been eagerly awaiting rate cuts for a long time. “2022 was the start of a dark period for the real estate sector. We saw the largest decrease in our sector since the global financial crisis. But, we’ve seen a huge change in client appetite with regard to talking about real estate investments,” says Walker.

Urbanisation is a powerful multi-decade theme

It's expected that by 2050, nearly 70% of the world's population (compared to 55% today) will reside in urban areas. Walker says that this consistent trend of urbanisation continues to support the growth of global cities, and the opportunities for those who invest in them. “Nothing has changed in the fundamentals of people moving to areas where there are clusters of expertise and fun things to do. Urbanisation is as strong today as it was many years ago. When we look at the demand for things such as data centres, senior housing, residential, those are incredibly strong now, as they were two years ago.”

Knowing which cities stand to benefit from this demographic shift means investors can target the right opportunities

According to Walker, Global Cities are those which capture the world's attention and investment. “They are international hubs for individuals and businesses. It is in these cities you will find world-class universities and enterprises - with governments working hard to ensure they continue to thrive.

"These cities’ foundations lie in superior sustainability policies, strong infrastructure, diverse economies, skilled labour and a high quality of life. They attract the best talent worldwide, which contributes to continuing economic growth,” says Walker.

He adds that investing in real assets within these ‘winning’ cities gives exposure to a diverse range of industries (from data centres, self-storage and manufactured homes to conventional areas such as offices, retail, and industrial facilities) and access to economies that are expected to outperform national averages.

Walker believes we are clearly moving from a headwind to a tailwind in terms of global real estate. “The discounts in the listed sector, which is still pessimistically priced and the evidence of M&A increasing, shows that there is value, and so we are constructive too.”

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