Real Estate & The Impact Or Not Of The Olympic Games

LONDON-With 100 days left until the 2012 Summer Olympic Games starts here, the city has definitely seen economic and commercial real estate development growth in support of the contests, though the true impact on the local market is debatable.

Historically, how a city fares with CRE after hosting the games seems to be more dependent on the factors in the market than the hype leading up to the event, and the growth boom being seen now in London, and in Rio de Janeiro for the 2016, will likely only continue if the cities can sustain other fundamentals such as jobs and government efficiency.

In a study by economics professors Xuebing Tang and Yongling Yao titled “The Impact of Staging Olympic Games on Real Estate Price in Beijing,” published in the March 15 issue of the journal Research in World Economy, the authors concluded that the spike of activity, and of real estate prices, during Olympic preparations is not a predictor of future prosperity for the host city. Rather, the authors said that the success of former host cities such as Beijing have more to do with the economic factors already in progress.

Predictably, according to the study, the price of real estate typically increases before the Games in host cities, as it did by 19% in preparing for the 26th Olympic Games in Atlanta, and by more than 10% per year in Sydney for the 2000 Olympic Games. The same is true for London, which saw CRE transactions of almost $5.8 billion in the first quarter of 2012, an increase of 42% from the fourth quarter 2011. Rio is spending billions on its preparations, and has the demand to follow the investment, with investors now gaining 10% yields on properties.

However, Sydney has seen a steady decrease in real estate prices since the Games. Atlanta didn’t hold onto its growth rate, being passed by other core cities before the recession, and now has one of the worst office vacancy rates at almost 25%. Most cities that have hosted the games have spent more than predicted on infrastructure and development, at times to the consternation of citizens because of the resulting budget cuts.

Time, and the progress of debt cleanup in Europe, will tell if London can hold onto its strength as a core CRE market. Brazil has experienced massive growth due to factors such as an expanding middle class, and may also continue improvements regardless to the Games. Both cities are focusing on the Olympics to showcase their world image, but the true outcome will likely be measured by market factors, and not torch-wielding athletes.

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