Cape Town’s rank in Schroders’ Global Cities Index improves

Cape Town has improved its position by 20 places in this year’s Schroders Global Cities Index, and is currently number 438 in the 2020 rankings. This places the city 20 places higher on the list since the publication of the 2019 Index. The improved ranking is the result of a significant increase in Cape Town’s innovation score from 4.3 to 5.3 and a strong environmental score (7.0).

The Schroders Global Cities Index looks to identify and rank some of the best and brightest global cities, to provide investors with a view of where some of the biggest global real estate opportunities lie.

The innovation score is linked to the ranking and quality of educational institutions. According to the QS World University Rankings, University of Cape Town ranks in the top 200 universities in the world and the top university in the African region. The score is also improved by University of Western Cape and its proximity to Stellenbosch University.

Next, the environmental impact score is determined by a city’s physical risk, wellbeing risk and policy risk. Cape Town’s environmental score is driven by a particularly high physical risk score. It should also be noted that given South Africa’s energy generation mix (coal accounts for around 70% of installed generation capacity, producing around 429.97 million tonnes of CO2 per annum), Cape Town’s relatively poor environmental score is understandable.

The economic impact score is driven by population growth, GDP, median household disposable income and retail sales. Of the factors considered within the economic impact score, Cape Town scores highest within the population growth category , and the city’s population has experienced a steady growth rate of 2% since 2015 to an estimated 4,709,990 today.

With that said, there are high levels of inequality with the top 20% of the population holding over 68% of income while the bottom 40% of the population holds 7% of income.

For the first time, the Index has introduced a transport score, with a particular focus on mass transit systems. This change is largely the reason why Los Angeles has lost its first place position to London – a spot that the US city previously held for four consecutive years,

Coming second in this year’s index, San Francisco is an important tech hub where some of the world’s leading companies are located. It also boasts high quality universities and centres of innovation, such as Stanford. Based on per capita income, San Francisco’s embedded wealth remains very high.

Boston took a prestigious third place owing to its world-famous Research centres: Massachusetts Institute of Technology and Harvard. Relative to other cities, Boston’s transport infrastructure remains competitive based on distance between bus and rail nodes.

Schroders’ Global Cities Index is based on four metrics called impact scores: economic, environmental, innovation and transport. The ranking identifies cities with a combination of economic dynamism, excellent universities, forward-thinking environmental policies and excellent transport infrastructure.

The newly-introduced transport score has been designed to complement the environmental score, which was introduced in February 2020, as an efficient transport network is now seen as essential in supporting social mobility. The index is now tilted towards these two environmental and social factors, giving greater credit to cities which deliver on these key points.

Regarding the transport score, Cape Town has attained a score of 5.4 for its transport infrastructure. The transport score analyses data of five transport modes: sea, road, train, bus and air. The city’s transport score was driven by the accessibility and quality of its port and airport facilities. The city’s major airport, Cape Town International Airport, is ranked the second busiest airport in Africa, and the port of Cape Town is situated along one of the world’s busiest trade routes and is the second largest container port in Africa.

The average one way commute in Cape Town takes about 40 – 50 minutes. The transport score was brought down by the quality of its rail network. This, combined with the low median disposable income of the city’s population and unsustainable cost of the rail system has led to the vast majority of passengers to shift to the road network. The deterioration and lack of use of a rail transport system is inextricably linked to economic quality of a city as it limits job accessibility and the ability to move goods and data efficiently and cheaply.

Hugo Machin, Portfolio Manager and Co-Head of Global Cities, Schroders, commented:

“The Covid-19 crisis has had a profound impact on global cities. With many people forced to work from home during the pandemic, office owners will now have to compete even more aggressively for customers. Improved broadband speeds and communication platforms, as well as the rise of flexible office providers, threaten traditional landlords.

“When the global pandemic subsides, cities will remain centres of innovation and entertainment. The best cities will continue to evolve, encouraging the development of open space and greener buildings. Human settlement requires planning and the majority of employment requires human interaction and the sharing of ideas. Cities that understand this will be best placed to thrive when competing for talent and capital. The aim of the Schroders Global Cities Index is to quantify what makes a city successful.

“Cities are responsible for more than 70% of global CO2 emissions[1] and how they respond to the demands of rapid global urbanisation, as well as environmental and social concerns, represents both a challenge and opportunity for policy makers, residents and investors. As an active manager, we are committed to understanding the real impact that our investments have on society and the environment. We integrate ESG considerations into our research and overall investment decisions across investment desks and asset classes.”

The introductions of a transport score and, last year, of the environmental score has lessened the emphasis on the economic score. The result is a downgrading of cities that are simply populous.

The new transport score uses proprietary research to analyse modes of transport in different cities. In particular, walk times to bus and train stops can be calculated, as well as journey times on roads; and passenger and freight volume through ports and airports. This important evolution of the index provides a better understanding of how efficient a city is. This is, in part, why some North American cities have fallen down the ranking.

ENDS

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