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Key themes on the globalisation of real estate

The following article, takes a more in depth look at some of the key themes on the globalisation of real estate.
© HBS and RREF

What is globalisation?

Globalisation is a process by which national and regional economies, societies and cultures have become integrated through global networks of trade, communication, migration and transportation.

In the previous video, Professor Kathy Pain outlined the main dimensions of that relationship and there’s little doubt that globalisation is going to be a key issue facing the real estate industry in the foreseeable future.

Dimensions of globalisation

The underlying dimensions of the globalisation process have been:

  • the increasing, but uneven, the process of urbanisation (the trend for population migration to urban areas); and the creation of mega-city regions. If you’re keen to learn more about this topic, watch Kathy explain the opportunities and challenges of mega-city regions in this YouTube video.
  • the movement towards a service sector economy (ie roles that provide service(s) to an individual or organisation rather than producing physical goods, for example, a marketing agency). As well as the importance of ‘command and control’ (ie strategic management) functions in that economic structure.
  • the important role of technology in facilitating the mobility of financial flows around the world (eg computers and the internet),
  • the dominant neo-liberal political response from national and local government which support market-based competition between cities to attract those flows of money as ‘inward investment’ (eg policies that try and attract big global companies to locate locally).

The resulting outcomes are proving a challenge for sustainable urban development.

Real estate as a channel

Real estate acts as a channel for the flows of international finance in different ways. Commercial property is the physical entity that provides office space for the global businesses that generate those flows.

The real estate industry also acts as a service provider which brings together the key actors (investors, developers, major businesses, etc.) that create these centres of economic activity.

Finally, real estate itself is a financial product that can be owned and traded as an investment.

Three models of globalisation

There are different views about globalisation and the role of national government policy, and three distinct models can be distinguished.

  1. The globalist perspective sees a single global economy that sits above nation-states and is now more powerful than any single national government.
  2. A traditionalist model views the global economy as amenable to the influence of national governments.
  3. The transformative view acknowledges the influence of global flows and economic integration but argues that national (and local) governmental policies still have an important role to play. It is argued that this third model is the most convincing and useful for academic analysis and governmental policy-making.

Global cities

Despite the increasing globalisation of real estate investment and development mentioned above, the organisation and management of this process are dominated by quite localised and deep social networks in these global cities.

The professionals working in the main real estate, financial, legal, research and business sectors are based in particular cities such as London, Tokyo and New York, and build close working relationships.

Given the financialisation of real estate mentioned by Kathy in the video, one of the key individuals in this network is fund managers, who manage the big pots of money that get invested in real estate and other assets on a global basis.

Map of the world

©University of Reading.

Commercial office development

Commercial office investment and development is concentrated in selective ‘gateway’ cities and most of the big real estate deals take place in these cities, especially London.

These deals are usually arranged by a select group of real estate agents working for global real estate companies. This concentration of highly skilled and well-networked professionals requires supporting social or ‘soft’ infrastructure which is:

health, community and environmental facilities that are needed for places to function properly; such as schools, health centres, playing fields, and ecological habitats.

This, once again, shows the importance of governmental policies in providing the right quality of life in these cities in order to attract and retain these people and these companies.

© HBS and RREF
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