Real estate investment activity has been focussed on the mega-cities over the last five years or so, but there are small cities punching well above their weight and proving worthy of investor attention.
Foremost among these is probably Austin in Texas. A city of only 840,000, Austin tops the charts on a variety of measures: GDP growth, house price growth, population growth and the digital economy - it heads our measure as top of the Tech cities.
The Austin phenomenon is not confined to Texas or even to the USA. Many of the world's smaller cities are able to punch above their weight because they attract a particularly valuable type of capital: human talent. This is the currency of the new world economy - if your city can attract the right talent, it also has value.
It's a phenomenon that investors seeking new locations, new sectors and even new property asset types would do well to note.
Take Dublin (pictured). Small, euro-denominated and having experienced some of the world’s biggest capital value falls after 2008, it will have fallen under many an institutional investors' radars. Yet the city topped IPD’s total return to real estate chart last year.This is exactly what makes the small upstart cities such an interesting phenomenon
Investors may need to look for different metrics to spot the best investments. Tenants are more likely to be a variety of small companies, scale-ups and start-ups rather than big tenants with conventional covenants.
Other traditional investing rules don’t apply either. Buildings do not have to be large, grade A core ‘starchitect’ product. It might even be better if they're not. Tenants will be looking for the life of the city itself, its streets, its shops, its markets, its culture. Indentifying the 'hipster hangouts' may pay bigger dividends for the investor than waiting for the institutional grade building to go up.
For the really adventurous and footloose investor, spotting a small city with potential means looking for young populations, and enterprise culture and a growing community of artists. Our top tip for the ultra adventurous? Beiruit. Rising phoenix-like from destruction can boost returns – but, as usual, high returns may mean high risk.
Savills at MIPIM
Visit Savills at Zone A Riviera. Each day we will present a daily report from the show, focusing on the retail sector, the commercial sectors in the UK and the residential investment market.