Investors are flooding into commercial property markets in core global cities, with New York attracting the most investment during the last year, according to a report from global property consultant Cushman & Wakefield.
With volatility returning to financial markets and uncertainty about the global economy widespread, investors are continuing their 'flight-to-quality' and are looking for safe opportunities in mature, regulated markets.
The 'Winning in Growth Cities' report identifies the largest and fastest-growing cities in terms of commercial real estate investment, the difference in pricing, as well as demand and activity within individual sectors. The report is based on estimates for the year to Q3 2011.
New York tops a list of US cities which have enjoyed buoyant demand this year, catching up to some extent with earlier recoveries seen in Europe and Asia. London is the second largest target, but the leader for overseas investors. Tokyo saw activity ease as the disruption of the earthquake, tsunami and nuclear disaster disrupted the market. However, unsatisfied demand is strong and the city held on to third place.
Global economic uncertainty and a tightening in policy have led to a slowing in the worldwide recovery in the past few months and have driven investors to focus harder on the prime market. With investors likely to stay risk-averse, many are expected to remain focused on the top-ranked cities in the year ahead and pricing for the best space is likely to increase further in all regions, with investors and occupiers facing a shortage of quality space in the best locations.
The opportunities for the less risk-averse will therefore be split between creating modern space in top cities or finding the next tier of cities and city locations to benefit from supply shortages in the core. Indeed, the evolution of a new inter-dependent hierarchy of cities will create new areas of opportunity for investors of all levels of risk tolerance.
The top 25 cities overall saw investment volumes rise 48% in the year to Q3, marginally ahead of the wider market which saw a 41% gain. As a result, market concentration has increased, with the top 25 commanding a 54% market share compared with 52% in 2010. The office market was the dominant sector, taking a 40% share of the total volume, followed by retail (25%) and industrial (11%).
There was little change in the top 25 ranking with the top nine cities remaining the same as those in last year's ranking, although they have swapped places. 20 of the top 25 cities are the same as last year, with five newcomers: Boston, Atlanta, San Diego, Hamburg and Melbourne. The cities which dropped out of the top 25 are Sydney, Taipei, Kuala Lumpur, Amsterdam and Vancouver. US cities saw the best growth amongst the top 25, with several close to New York in growth terms, notably Chicago, Boston, Atlanta and LA. Elsewhere, Seoul and Melbourne also made strong gains.
The fastest-growing cities
In terms of the fastest-growing cities for commercial real estate investment, the continent with the most locations within the top 25 is the USA. Chicago saw the highest percentage increase in the amount of capital invested. Growth was supported by a number of large CBD office transactions, with a couple surpassing the US$600m mark, as investors look for core opportunities in city center locations.
Europe has the second largest number of cities in the top 25, with eight. The fastest-growing city in Europe was Frankfurt with the two top deals both in Frankfurt's CBD totaling US $1.6 billion (Deutsche Bank Twin Towers and OpernTurm). In Asia Pacific, Seoul was the best placed city, ranking ninth.
Although New York is the top city for real estate investment globally across all investors, London remains the top choice for overseas investors, followed by Paris and then New York. Singapore and Beijing take fourth and fifth ranking. Of the top 25 cities for overseas investors, only 12 are shared with the overall top 25 ranking, with overseas investors