global perspectives

Leaving town?

November 4, 2020

Pandemics have always had a profound effect on humanity, and especially when it comes to cities. The Black Death in Europe’s Middle Ages halved, for instance, the population in Florence. This destabilised feudalism and, according to some historians, gave birth to the Renaissance as new thinkers started to dwell more on their lives on Earth, rather than the afterlife. The creation of the London sewer system, with the well-known Thames embankments, was built as a reaction to the devastating cholera pandemic of 1850.

Although the current COVID-19 virus has not caused the same degree of casualties we have previously seen in history, and hopefully it never will, we still believe that also this pandemic will lead to profound changes in our society. We expect the COVID-virus will mark the end of urbanisation and, for now, will stop mankind’s march into cities, which has been ongoing ever since the industrial revolution.

2020 will mark the peak in urbanisation

Today, more than half of the world population lives in cities. Some countries like Japan are even approaching urbanisation levels of 90%, while developing nations like India have just passed the 35% mark. In an industrialised society, living in a city offers a number of cultural and economic benefits. It provides easier access to the labor market, better education, normally cheaper housing and it reduces the duration and cost of commuting. However, we believe that a combination of secular trends have changed this dynamic and that 2020 will mark the peak in urbanisation.

The first signs are already visible in western cities like New York, London and Paris, where up to 10% of the population fled during the first wave of the pandemic. Rents are already declining in Manhattan, shops, theaters and restaurants are closed, crime rates are up, making wealthy people fleeing the city an almost self-fulfilling prophecy. To many, it makes perfect sense to leave, for instance, Paris, especially in the Zoom economy we have created. Simply exchange your two-bedroom apartment in the expensive 10th arrondissement for a similarly priced rural château and pop into Paris once a week by TGV. The pandemic follows on from a number of terrorist attacks, large gilets jaunes’ protests, a 40C-plus-degree heatwave and the longest transport strike since the late sixties.

For investors, this trend of leaving town provides a strong growth driver for investment returns. The demand for new build houses out of town is rising, DIY retailers are booming and the demand for garden equipment is growing much faster than before COVID.

We expect that wealthy baby boomers will be the first remaining city dwellers to leave, probably soon followed by millennials with young families that have embraced working from home. It is hard to see this exodus reversing soon as it is driven by long term trends such as the ageing society, the Zoom economy, and virus fears that will probably stay with us much longer than the virus itself.

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