Climate risks weigh on investment appeal of Sydney and MelbourneSydney has fallen in the world rankings as a destination to invest in real estate. Photo: Supplied

Climate risks weigh on investment appeal of Sydney and Melbourne

Sydney and Melbourne have both fallen in their ranking among globally attractive real estate investment destinations, based on an analysis of cities around the world and their economic prospects by global investment manager Heitman.

Sydney fell from seventh spot to 10th and Melbourne from 17th to 19th on Heitman’s “prime” real estate market ranking.

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.

John White says Sydney and Melbourne's economic performance is lagging behind US counterparts. Photo: Wayne Taylor

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.

“There have also been a few interesting additions in recent years. Dublin, for example, kind of came from nowhere. As Brexit started to become a globally significant issue for financial services firms we saw a number of accounting firms and investment banks moving operations to Dublin.”

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