Research article

Compass Points

A snapshot of the global property market, analysing the elements that will drive change in the future.

This edition of Compass Points continues to cover the themes of: urbanism; the rise of secondary property, alternative asset classes and second-tier cities; continued US growth; and recovery prospects in key locations.


The new creative tech sector is emerging as the fastest-growing real estate class (see Special Report). The disruption caused by the digital age will extend to cities, especially those that are unable to provide the environments that are needed in order for creative industries to thrive. Not only are we seeing multi-speed cities and slower urbanisation in some cases, but also the potential for accelerated growth in new, small, perhaps unexpected, cities.

Some of the fastest-growing cities may be hitherto overlooked (who would have foreseen the rise of Austin, Texas 20 years ago?), but characteristics such as skills, lifestyle, people, environmental quality, low costs and favourable business environments will enable them to compete in the digital age in ways that would have once been impossible in the industrial age.

We have already seen the emergence of new employment and residential areas in tech cities, where new neighbourhoods and property-owning classes have sprung up. We now expect to see the start of a re-ranking of city investability and growth over the coming decades that will see some places relegated, while others emerge from obscurity behind the red line of investing institutions.

"The fastest-growing cities may be small"

Yolande Barnes, Savills Research


Turmoil in China’s stock markets, coupled with the threat of significant economic slowdown, is threatening the investability of China and poses the risk of contagion to the rest of Asia. The main question is whether losses on the Shanghai stock exchange will lead to the liquidation of real-estate assets, or whether investment will be diverted away from volatile stocks and into more tangible assets. On balance, we think the latter course is more likely. Limited share ownership and low interest rates in China should help to avert an asset sell-off, especially as there are few alternative asset classes for domestic investors to switch to.

Within China, the level of debt linked to real-estate land, development and built assets must be of concern to both investors and governments. We expect real-estate investors with equity to sit tight in major markets such as Shanghai, waiting for population growth and the low level of new developments to push up rents. Meanwhile, we expect levels of real-estate development and the rate of urbanisation in second- and third-tier cities to slow considerably as debt financing, for both corporations and individuals becomes scarcer.

"We expect real-estate investors with equity to sit tight in major markets"

Yolande Barnes, Savills Research

It may take a number of years before income returns in first-tier cities reach compelling levels for overseas entrants, but Chinese investment has been very much about growth so the weight of domestic money looking for a home, even in a recession, makes it hard to foresee prolonged periods of price falls in all but the most grossly oversupplied, speculative markets.

Chinese investors are almost certainly going to continue favouring real estate and it seems likely that they will favour overseas projects over domestic ones. Although the Australian economy has been impacted by the slowdown in China, its real-estate markets are potentially well-placed to capture investment from China in the longer term. In future, the absence of growth at home and the global search for income-producing assets will likely impact the type of real estate sought by Chinese and other Asian investors.


Our tips for real-estate growth continue to be small and second-tier cities, and higher yielding properties. There is scope for further recovery in Europe, although there is still a world of difference between countries, and between different cities within countries.

"The USA is now expected to perform"

Yolande Barnes, Savills Research

The USA, although disappointing in Q1, is now expected to perform. However, there are big differences between expectations for different cities. Good regeneration, renewal and redevelopment of specific neighbourhoods within cities will continue to be a major driver of excess growth for those looking for longer term exposure and some development risk.


We continue to foresee that growing, evermore affluent populations in Asia will continue to have an impact on real-estate development and investment in the region. With India now likely to outperform China economically in the near future, we anticipate more interest in the subcontinent. Singapore, positioned towards India and with prospects for recovery and rental growth, looks set for resurgence within the next few years, particularly as yields are higher than other world cities, meaning income flows will be more attractive to investors.

Emerging Asia-Pacific countries will continue to be of interest, especially those that are more insulated from the woes of China. With lower levels of debt and starting from a lower value base, Indonesia, the Philippines and Vietnam are the ones to watch in the medium to long term.  e potential for new resorts in the Asia-Pacific region also continues to be of interest.

"We anticipate more interest in the sub-continent"

Yolande Barnes, Savills Research

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