European City Pulse
Residential investment should not be country focused. In a globalised and urbanising world, successful strategies must focus on cities and regions.
Today, 56% of the world population lives in cities. By the middle of the century seven out of every ten people will be urban residents. Generating 80% of global growth and wealth, cities are already economic powerhouses - and they are only going to become stronger in the coming decades.
But cities also face challenges arising from social divisions, economic inequality and demographics, as well as environmental issues. Understanding the drivers that makes a city competitive and attractive to businesses and people is crucial to developing a successful long-term investment strategy.
Our local experts, such as our fund and asset managers, use the Index to fully understand the cities in which they live and work. It helps them understand the strengths of each city, appreciate how it may develop and plan strategies that will optimise returns for our clients.
Chief Economist, PATRIZIA
To understand emerging issues and challenges, PATRIZIA has developed a city ranking based on market fundamentals and location quality factors, as well as the innovative capacity and connectivity of each city.
To reflect the complex relationship between these factors, quantitative and qualitative indicators were identified and weighted for 142 cities across western Europe. In a next step, the outcome of the four sub-rankings were weighted again to form the final PATRIZIA European City Ranking.
Each factor has a series of metrics which are weighted and then combined to create the overall rank for that factor
Market Fundamentals Ranking Breakdown
Population describes the number of people resident within a geographical area and a given timeframe.
Identifying the attractiveness of a city is only a first step in developing an investment strategy. For investors it is also important to know how liquid an investment market is, as this determines how quickly capital can be deployed and how active portfolio management activities can enhance property value while the fund matures.
Consequently, the PATRIZIA European City Ranking also provides a liquidity indicator based on recorded transactions. This shows how active the institutional residential market in each city has been in the last four years.
The Four Investment Strategy Goals
Cities with economies that dominate their respective country or region are defined as powerful. London and Paris, for example, are powerful cities not only because of their sheer size, but also because of the significant role they play in the daily life of their nations. Stockholm, although far smaller than Paris or London, plays a similarly significant role in the context of Sweden’s economy. Due to their relative size powerful cities typically have a relatively liquid residential market that - given the dominant local economy - tends to be more expensive than the residential market of other city clusters.
Combining these two dimensions - ranking and liquidity - for the 142 cities results in a 25-field matrix that enables investors to identify target cities for a given strategy/risk-return requirement.
Looking at Examples, the Benefit of the Matrix Becomes Obvious.
The capital of Sweden is a powerful city because of its prime position in the country’s economic, civic and political life. It also has a favourably young demographic profile with one of the fastest growing populations in Europe while ranking highly in terms of connectivity and innovation.
Property prices in Stockholm have doubled over the last 15 years. For long-term investors, Stockholm offers opportunities to benefit from the continuing development of the local institutional residential market as the city is clearly on a growth path. However, the challenge will be to find suitable assets for the supply is limited.
The European City Pulse
Using tools generated from the matrix data, investors can zoom into different views of the cities in the Index and identify and compare key aspects of the 15 Featured Cities.
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