Cushman & Wakefield

Cushman & Wakefield

October 10, 2013 08:00 ET

New York Remains World's Largest Real Estate Investment Market

TORONTO, ONTARIO--(Marketwired - Oct. 10, 2013) -

http://www.winningingrowthcities.com/

  • Toronto ranked 19th globally, while Montreal was amongst the biggest gainers

  • New York is the largest global real estate investment market for the third consecutive year - with volumes rising 39% to US$49.2 billion in the year to Q2 2013

  • London holds onto second place overall with a 6% increase in investment volumes which totalled US$32.3 billion

  • Showing the fastest growth of any of the top 25 cities, Los Angeles leaps ahead of Tokyo to take third position

  • Global flows of cross-border capital reached US$170.7 billion in the 12 months to Q2 2013

  • Asia was the largest source of cross-border capital with US$55.4 billion invested non-domestically, 32% of the total

New York attracted the most commercial property investment during the last year, as the global real estate investment market saw volumes increase by 16.7% to US$649 billion, according to Cushman & Wakefield's annual Winning in Growth Cities report launched today at the EXPO REAL trade fair in Munich, Germany.

The top 25 global cities saw their market share rise from 53% to 55% over the year to June, with volumes ahead by 20.7% compared to a 12.1% rise in the rest of the market. However, while this group of cities continues to be favoured by investors for their low-risk qualities, there may be signs this heavy focus on core global cities is starting to waiver as investors seek new opportunities - market share of the largest 25 cities is down from 58% in Q1 2013 to 50% in Q2 2013, according to the report.

Carlo Barel di Sant'Albano, Cushman & Wakefield's Executive Chairman, commented: "Most indicators suggest property demand will both increase and broaden to embrace new markets and a higher share of investment will be cross-border as investors increase their risk tolerance. Assuming the US recovery continues to gain traction helping confidence and growth across all economies, we anticipate that next year will be favourable for much of the market as stimulus measures and recovery spark an appreciation in capital values for good quality space with strong occupier demand."

The make-up of the top 25 cities has changed little from last year, with Beijing and Stockholm dropping down the list and Denver and Frankfurt moving up as US and German cities outperformed.

The biggest gainers were Austin, Milan, Las Vegas, Montreal and Tampa. North America in fact had 15 of the top 25 fastest-growing markets, with 14 in the US plus Montreal - this is predominantly due to earlier signs of economic recovery and the weight of domestic capital in the North American market. Four cities from Europe made the top 25 (Milan, Frankfurt, Berlin and Hamburg) while Asia took six spots: Seoul, Perth, Brisbane, Sydney, Nagoya and Osaka.

"For Montreal, the shift in the epicentres is one of the key drivers of activity," said Bernie Marcotte, Senior Managing Director of Quebec for Cushman & Wakefield. "The downtown core is shifting and Sherbrooke Street is evolving. Office buildings are now becoming attractive opportunities for residential and mixed use investors much like we've seen developed in Toronto around Maple Leaf Square."

Paris was the main faller in the top 10 - from fourth last year to eighth position this year - due to a drop in larger deals. Other major cities to slip down the rankings include Toronto and Chicago but some of the more notable were in China - Shanghai, Beijing, Guangzhou, Chengdu and Tianjin were all down by 40% or more excluding development land sales; this is largely driven by a reduction in domestic, rather than cross-border, spending. A number of European cities also fell - led by St Petersburg, Istanbul and Budapest.

Offices are the most in-demand sector in the top 25 cities for investor capital but they did lose market share during the last year from 48% to 45%. Residential was also a big winner, moving up to 26% market share from 18.1%. Although to date many of the largest global players have focused on offices, they are now broadening their interest to other sectors and in particular looking at large mixed commercial and residential developments.

Global flows of cross-border capital reached US$170.7 billion in the 12 months to Q2 2013, a rise of 11.8% when compared to the same period in 2012. London remains by far the most favoured market for international investors with a 13% market share (US$22.4 billion) against 4% for Paris and 3.6% for New York. Shanghai and Sydney are the top two Asia Pacific cities for overseas investment, placing fourth and fifth respectively.

The biggest source of this cross-border capital was Asia meanwhile with US$55.4 billion invested non-domestically, 32% of the total. A significant share of this was targeted within the Asian region however and in relative and absolute terms, American investors have been the strongest players outside their own region in the last year, with US$40.8 billion invested.

Drivers of success

As well as identifying today's winning cities in terms of commercial real estate investment and the differences in pricing and demand, the Winning in Growth Cities report also looks at the key drivers of city performance including skills base, innovation and quality of life.

Near the top of the list in all areas in fact, New York and London clearly back up their winning positions in the property investment rankings. Paris, Tokyo, Hong Kong, Singapore and San Francisco also demonstrate strength across the board in all sectors, closely followed by Shanghai, Beijing, Seoul and Los Angeles.

According to David Hutchings, Cushman & Wakefield's head of European Research: "The concentration of activity we see in a handful of cities is difficult to break down into other cities but when combined with the fact that the real estate investment market should be growing and the range of participants broadening, then it is only to be expected that competition between cities will increase. At the very least we will in the future have a broader range of large dominant cities, if not some existing 'alpha cities' dropping down the hierarchy."

Activity in the Americas

A recovering housing market has certainly stoked US buyer interest but demand has in fact been very strong on the debt and equity side across all US sectors. With risk tolerances improving, interest has spread away from core cities to embrace secondary cities as well as overseas markets.

Greg Vorwaller, global head of capital markets at Cushman & Wakefield, said: "With economic growth steadily coming through and a tapering of quantitative easing drawing closer, a rise in interest rates has been shaping market expectations but with demand for space rising and construction still subdued, the strong flow of capital into real estate is likely to remain. As a result rising interest rates will have only a limited impact on core markets but a slower CMBS market will mean secondary markets are more vulnerable.

"Economic sentiment is cooler towards Latin America with commodity prices down and areas of social unrest but trends in the region have in reality become more diverse and we expect some real areas of demand growth in 2014."

About Cushman & Wakefield

Cushman & Wakefield is the world's largest privately‐held commercial real estate services firm. The company advises and represents clients on all aspects of property occupancy and investment, and has established a preeminent position in the world's major markets, as evidenced by its frequent involvement in many of the most significant property leases, sales and assignments. Founded in 1917, it has 253 offices in 60 countries, employing more than 15,000 professionals. It offers a complete range of services for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, corporate services, property management, facilities management, project management, consulting and appraisal. The firm has more than US$3.7 billion in assets under management globally. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.

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