Olympic's Affects on Real Estate
Olympic’s Affects on Real Estate: Beyond the Gold
by Mark Geoghegan
“…The nightmare Olympic case study is that of the Montreal Olympics in 1976, which lost money and left the Canadian city’s taxpayers to pick up the bill. Montreal’s Olympic stadium was finally completed in 1987…eleven years after the event. The final Montreal debt payment will be made in 2005-2006…”
The host city for the 2012 Olympic games will be announced in Singapore in July 2005. Paris and London are the current favorites, with Madrid, New York and Moscow also on the short list. The property market hype is sure to be huge if a West European city wins.
But British investors shouldn’t be beguiled by the property boom in Athens, where the Olympics opens in a little over 5 weeks…
Olympic’s Affects on Real Estate: The Olympics can’t deliver a property boom in London or Paris
Smaller, underdeveloped cities like Athens and Barcelona have seen huge property gains triggered by the Olympics. But in developed host cities, such as Sydney and Atlanta, the effect on property prices has been virtually nil. Sydney house prices increased by 50% between 1996 and 2000 – but research has shown that this was due to general market influences, rather than the games.
A report from Jones, Lang, Lasalle entitled ‘Reaching Beyond the Gold: The Impact of the Olympic Games on Real Estate Markets’ examines the impact of staging the Olympics on recent host cities and looks ahead to 2012. An important effect of staging the games, argues the paper, is the improvement of urban infrastructure in developing cities. This can have a major impact on property values – for instance, Athens is building a new airport to the east of the city which has sent land and property prices in the Messogia area soaring.
Olympic’s Affects on Real Estate: Infrastructure is all the Games can add…
The potential benefits for a Western European city are less obvious. Neither Paris nor Madrid would require a great deal of new infrastructure. London plans an 80,000 all-seater stadium in the Lower Lea Valley in east London. But there is no clear idea about the role of the stadium in the area after the games.
A football club would be one possibility – but football is not noted for improving local property prices. The London Development Authority has admitted that the stadium might be demolished if no ‘anchor tenant’ can be found. Olympic facilities such as diving pools, velodromes and running tracks tend to be highly specific and not easily adapted into the kind of focal point that can give a permanent boost to an area. They are also expensive to maintain once the show has left town.
The problem has been experienced at Homebush Bay, site of Stadium Australia for the 2000 Olympics, and underused ever since. Indeed, in the US state of Georgia, many of Atlanta’s Olympic buildings were pulled down after the 1996 games.
Olympic’s Affects on Real Estate: How the Olympics ‘crowd out’ real long-term investment
Indeed, investment caused by major sporting events can replace, or crowd out, other spending within the local economy. This means that there is no overall benefit.
The city of Palo Alto in the US, for example, lost around $400,000 during the football World Cup of 1994, due to the cost of policing visiting supporters. This effect is known as ‘total crowding out’, where the costs of running an event are simply too big to be recompensed by any of the revenue it generates.
Certainly, the Olympics can’t insulate local property from wider market influences either. The Barcelona games in 1992 led to the complete redevelopment of the city’s waterfront. Yet despite an estimated $16.6 billion dollars of investment generated by the Olympics, the city still suffered from the economic downturn suffered by the rest of Europe in the early 1990s.
It can even be argued that the Olympics hurt property prices!
Overspending of public money on a one-off event can mean higher taxes for years to come, draining spending power from the economy and so harming both property prices and rents. The nightmare Olympic case study is that of the Montreal Olympics in 1976, which lost money and left the Canadian city’s taxpayers to pick up the bill.
Montreal’s Olympic stadium was finally completed in 1987…eleven years after the event. The final Montreal debt payment will be made in 2005-2006.
Costs for the Athens games, meanwhile, are already well over the initial budget. Security alone will cost $1 billion, compared with an initial budget of $650 million. The security costs for whoever wins the 2012 bid are certain to be equally massive. Security for the Olympic Village in East London would, under the terms of the bid, be charged against Olympic revenue while extra security for the rest of London would be paid for from the public purse.
The extra property supply caused by new urban districts might also have a negative impact on prices in some areas. London plans an Olympic Village that could accommodate up to 17,800 athletes and officials. It would be used as housing in the Lower Lea Valley once the Games had been held. Whether the extra supply can be digested without a fall in prices will depend on the general health of the market at the time. But landlords now holding rental property in that region should watch the IOC’s voting carefully.
The Olympics benefit poor cities – not rich capitals
Developing cities have more to gain in terms of promoting awareness of the city as a tourist or business location. Beijing hopes that its hosting of the 2008 Olympics will increase international trade in an already fast-growing economy, and elevate the country’s standing in the same way the Tokyo Olympics did for Japan in 1964. These benefits are not likely to accrue to very well known cities in mature economies, such as London or Paris.
The Beijing Olympics will trigger a flood of investment from international corporations in China, tempted by the chance to use the world’s highest profile sporting event as a marketing platform in the world’s most populous nation. The country plans to launch a satellite to monitor the construction of venues and the Beijing traffic – which is seen as the greatest threat to the success of the games.
In short, the Olympics provide an extra reason to consider investing in host emerging market countries such as China. But claims of an automatic property effect nearer to home should be treated with skepticism.
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Mark Geoghegan is Managing Editor of the Fleet Street Letter’s Platinum Service. Mark spent 7 years working for Lloyds as a re-insurance broker in Madrid, before editing the Latin American Newsletters service, based in London. Today, he leads a team of special analysts dedicated to seeking out exciting new investment opportunities – across the world – before the press even catches wind of them.