New York and London top X-factor index of global cities

by Ray Clancy on April 11, 2014

New York and London are the leading cities in terms of wealth generation and economic growth which means they are likely to appeal to expats seeking a world class city to live and work in.

A new report from international real estate adviser, Savills, classes leading cities on their prominence and fame, as well as economy and size that give them what it calls ‘world class’ city status with the X-factor.

newyork

New York and London are the leading world class cities followed by Singapore and Paris

The firm has looked at a combination of global competitiveness, together with measures such as connectivity, international visitors and web search data, to determine overall world city status.

Behind New York and London are Singapore and Paris followed by emerging cities such as Moscow, Mumbai and Rio de Janeiro which are less established leading global cities in the top tier of 12 covered by the study.

‘Our definition of a world city is not just based on size or economic prosperity, but other less tangible factors. These include fame, prominence, international reach and investability, all factors that are not revealed by population and GDP figures alone,’ said Yolande Barnes, director of Savills World Research.

‘These intangibles impact on the appeal of a city to business and wealth generators, which in turn influences the pace of residential and commercial real estate market growth and contraction and levels of market stability,’ she explained.

‘The redrawing of the global economic map is having a significant impact on real estate markets. New world economies, notably China and India, have recently seen weakened growth, while older industrialised economies, including the USA, UK and Japan, are now recovering more strongly than many commentators anticipated,’ Barnes pointed out.

‘As a result, the runaway real estate growth of new world cities has abated and in some cases, such as Mumbai and prime Hong Kong, it has reversed. The strength of investment markets in new economies are personified by Dubai’s high growth real estate centre. Its revival is indicative of a market recovering from very full price corrections after 2008,’ she added.

The Savills overall city characterisation does not necessarily reflect traditional measures of economic or real estate costs and values, it speaks to the longer term stability and attractiveness of a world city destination.  The three cities with the highest X factor also appear in the top four for investors in residential real estate, however, they are also in the top four most expensive destinations for employee live and work costs.

To understand the true appeal of residential and commercial real estate as an asset class in each city, Savills has again compared gross rental income to the income available from 10 year government bonds in each country, creating a ‘net of gilt’ yield. This, they say, gives a true measure of the performance of real estate compared to the local risk environment.

By this measure, Tokyo provides the highest returns in relation to bonds and has started to be favoured by more adventurous investors who understand the singular character and risks of Japanese real estate markets. New York too provides some compelling gross yield levels which have encourage increasing investor interest.

Savills also identifies Hong Kong, Shanghai and, most notably, Mumbai residential real estate values as looking most vulnerable to correction. New York and Sydney look to be markets with greatest scope for growth, while London and Dubai residential prices appear on the higher side of average, particularly the cities’ prime markets, but are still some way off the hottest cities.

Barnes also pointed out that some second tier cities, not yet in our index of 12 leading world cities, represent good value alternatives and could start to rise in popularity with investors.  These include Istanbul, Hanoi, Kuala Lumpur, Jakarta and Bangkok.

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