Climate risks weigh on investment appeal of Sydney and Melbourne

Environmental concerns – such as rising sea levels and extreme weather events and the impact they have on insurance – was one of the factors weighing on their otherwise strong investment appeal, Heitman’s senior managing director of public real estate securities, John White, said.

Heitman analyses a broad range of data across economic, trade, property, human capital and cultural and political characteristics of cities, with a goal of picking locations with strong, long-term real estate investment prospects for potential inclusion in its investment strategy.

Despite uncertainty over the impact of Brexit, London remained at the top of Heitman’s annual real estate market index, followed by New York, Singapore, Paris and Tokyo.

New to this year’s ranking system was research looking at longer-term sustainability factors to get a sense of how cities were adapting to a changing climate.

“The resilience of cities like Melbourne and Sydney and Brisbane and climate-related risks are increasingly top of mind,” Mr White said.

“Our energy policy and climate policy [in Australia] is very much not as developed as what it is in Europe, for example. We are looking at the direction of where global investments can go with more of a focus on responsible investing and sustainability in the really long term.

“Australian companies are up there in terms of sustainability practices … there is a commitment to deliver better outcomes around the environment from corporates whereas we are kind of dragging governments along with us.”

Knowledge economy a strength
Also affecting the rankings of Sydney and Melbourne was the relative economic performance of the two cities, which was lagging relative to their US counterparts, Mr White said.

A number of European cities had started to pick up in the rankings because prospects for the Eurozone were looking better than they had previously.

One of Australia’s strengths, that was encouraging investment, was its knowledge economy driven by research and teaching at the country’s top universities, Mr White added.

Despite uncertainty around the impact of Brexit, which he described as a “blip”, Mr White expected London to continue to be an important investment hotspot in the long term.

“When talking about European cities, some are starting to drop away in terms of their importance, others like Amsterdam and Paris are taking some of the spillover from the outcome of Brexit.