Global cities are the hubs for economic growth says Schroder Real Estate
Key global cities will drive economic growth according to Hugo Machin and Tom Walker, Co-Heads of Global Real Estate Securities at Schroder Real Estate.
According to the United Nations, over half of individuals will be living in cities by the middle of the century. Global cities, such as LA, New York, Tokyo and London, will become stronger as employment opportunities continue to centre on a select number of urban powerhouses and Machin and Walker believe that real estate could be a way for investors to tap into this trend.
“There is a very close correlation between real estate and the wider global economy. Investors in global cities should be able to share in the growth of some of the fastest growing parts of the global economy and the potential to achieve solid investment returns over the next few years. The world is moving away from sovereign borders and is becoming defined by economically powerful global cities,” explains Hugo Machin, Co-Head of Global Real Estate Securities.
The Schroder Real Estate Team has recently developed the Schroder Global Cities Index which looks to rank the urban centres of the future. The index will look at economic growth forecasts, including disposable income, retail sales and working population growth. Other factors will focus on measuring the competitiveness of a city, which includes looking at the provision of tertiary education, the quality of infrastructure and the capacity of the transport system.
“These factors are crucial: a top ranked global city needs to be able to move people, goods and data efficiently. In addition, the ability to interlink with other global cities – creating a network of physical and virtual links – becomes increasingly important to the economic health of a city. Cities that combine high rankings on these measures with the key ingredient of scale, will continue to blossom. To be a global city requires diversity, not just in its population but also in its economy,” says Hugo Machin.
Hugo believes that cities such as LA are showing some of the best opportunities due to its location and diverse economy.
“Los Angeles is surrounded by national parks and there is regulation in place whereby it is almost impossible to bring in or increase the level of supply within the city due to zoning, height restrictions and height regulation. It has a very diverse economic base. It’s not just reliant on the media and entertainment industry and in addition to that it has a highly sophisticated infrastructure system in place that moves people, goods and data across the city which helps provide good long term sustainable growth and ultimately makes it a city that people want to live in.”
The Schroder Global Real Estate Securities Fund, which is co-managed by Tom Walker and Hugo Machin, will be renamed Schroder Global Cities Real Estate with effect from 1 August. There will be no change to how the fund is managed and no impact on investors existing holding. The investment objectives of the fund will be amended to clarify the team’s conviction that global cities are the hubs for economic growth and development and funds that invest in real estate securities which own properties in successful urban centres worldwide should perform better than those that lack this exposure. 70% of the fund’s investments are exposed to companies that invest significantly in real estate in the top 30 cities in the world (as ranked by Schroder Real Estate's proprietary Global Cities database).
The fund invests in globally diversified listed real estate stocks and as such is not subject to single market shocks. The portfolio has a universe of $1.2trn to choose from. Investments in real estate securities are generally more liquid than investments in physical property.
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Schroder Real Estate
Schroders has managed real estate funds since 1971 and currently has £11.8 billion* (€14.8 billion/ US$16.6 billion) of gross real estate assets under management as at 31 March 2016.
Most of the real estate funds referred to are unauthorised collective investment schemes as defined in the Financial Services and Markets Act 2000. Promotion of these funds is restricted and access to full information about these funds is only available to those exempt from the restriction.
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*Real Estate AUM includes cross holdings in certain Schroder managed real estate funds.
Schroders is a global asset management company with £324.9 billion (€409.7 billion/US$466.9 billion) under management as at 31 March 2016. Our clients are major financial institutions including pension funds, banks and insurance companies, local and public authorities, governments, charities, high net worth individuals and retail investors.
With one of the largest networks of offices of any dedicated asset management company, we operate from 38 offices in 28 countries across Europe, the Americas, Asia, Middle East and Africa. Schroders has developed under stable ownership for over 200 years and long-term thinking governs our approach to investing, building client relationships and growing our business.
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Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. The fund holds investments denominated in currencies other than sterling, changes in exchange rates will cause the value of these investments, and the income from them, to rise or fall. Funds which invest in a smaller number of stocks can carry more risk than funds spread across a larger number of companies. Investments in smaller companies can be less liquid than investments in larger companies and price swings may therefore be greater than in larger company funds. Funds that focus on specific sectors can carry more risk than funds spread over a number of different industry sectors. The fund can use derivatives for specific investment purposes but currently does not. If we decide to use derivatives this way, this may result in a more volatile unit price and so result in a higher degree of market risk, therefore we will give the unitholder appropriate notice if we decide to do so. The fund is not tied to replicating a benchmark and holdings can therefore vary from those in the index quoted. For this reason the comparison index should be used for
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