A new generation is flocking to cities, driving major economic and social shifts
Bright city lights are shining on alternative investment opportunities as urbanization trends impact everything from agriculture to real estate to infrastructure
The story of the past century has been one of dramatic population shifts that coincide with relentless industrialization in many parts of the world. In this century, the pace of urbanization has retained its momentum as people migrate from rural to urban areas to seize greater economic opportunities and experience the dynamism of the world’s metropolises. According to the United Nations, more than half of the world’s population already lives in urban areas today, and the organization predicts that this percentage will rise to 68% by 2050.
North America is among the world’s most urbanized – 82% of people in this region lived in urban areas in 2018.
Agriculture: Farms and cities
How will our agricultural sector keep pace with the needs of a rising global middle class in urban areas? Future demand for food, especially protein, would appear to make agriculture a solid investment. Yet, this global drive to feed city dwellers can also add complexity to food production while straining natural resource systems. Urbanization means that formerly productive agricultural land must be converted to commercial and residential areas, putting more pressure on remaining arable land. In some regions, this results in water scarcity, erosion and other problems. Notably, in Brazil, the demand for arable land comes with the threat of deforestation (Nuveen recently formalized its Deforestation Policy to help forestall this consequence across our agricultural investments).
Infrastructure: Assets under increasing pressure
Urban infrastructure is integral to a city’s growth and productivity, yet it is often taken for granted as it vies with other budget priorities for funding. In old cities, infrastructure is aging, while in new cities the demand for new construction is rising. What must be fixed? What must be built? How will the public and private sectors collaborate to fund the work that needs to be done? Even as we seek answers to these questions, the fundamental assumptions are in flux due to changing commuting patterns and explosive growth in shipping and delivery congestion as e-commerce moves into the mainstream.
Impact investing: The urban socioeconomic challenge
Cities with burgeoning populations often experience gradual gentrification of neighbourhoods to appeal to middle-class buyers. This process often is supported by investment capital that seeks lower-risk returns. This trend, however, has a consequence: substandard housing choices often are all that remain for lower-income and elderly citizens. One solution to the diminishing supply of affordable housing in urban areas is impact investing that’s aimed at preserving rent subsidies while refurbishing the housing stock to create livable communities.
Real estate: Tilt toward Asian Pacific cities
By 2030, Asia Pacific, led by China and India, will account for nearly half of the world’s output, more than 50% of the world’s urban population growth and almost all of the top 50 global cities. Though the global growth is in Asia Pacific, not all of Asia Pacific is monolithic — there is a vast diversity in geography, culture and economics — positioning investors to achieve broad diversification and attractive risk adjusted returns.
We hope you find these perspectives useful as you review your business activities and strategies. We are long-term investors, which means that we are constantly looking toward the future. We believe that the ever-greater concentration of people into urban areas will have significant implications for long-term investments. This is why Nuveen is factoring in the urbanite surge as we strive to add alpha and reduce risk for our investment clients.
Download Nuveen Knows: Upcoming urbanites
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