New York has topped London as the city drawing in the most commercial property investment in the world, according to a report from Cushman & Wakefield unveiled at the Expo Real property show in Munich today.
The global property consultant's report, “Winning in Growth Cities,” has revealed that the Big Apple's commercial real estate sector saw a whopping 165 percent increase in investment in the year-to-third-quarter 2011. This marks the first time the city has held this Number One position in the report since 2007. 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 Japanese city held on to third place. Paris and Hong Kong, respectively, rounded out the top five of Cushman & Wakefield's list.
“A whole range of factors above and beyond size and wealth go to make cities a success, ranging from classic business location priorities through to softer factors such as image and liveability,” said David Hutchings, head of Cushman & Wakefield's European research group. “Advancing technology may give us the freedom to work anywhere, but this is only serving to reshape and sharpen the role of cities as a melting pot of people and ideas.”
The report states that 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.
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.
Overall, the top 25 cities saw investment volumes rise 48 percent in the year-to-third-quarter, marginally ahead of the wider market which saw a 41 percent gain. Consequently, market concentration has increased, with the top 25 commanding a 54 percent market share, compared with 52 percent in 2010. The office market was the dominant sector, taking a 40 percent share of the total volume, followed by retail – 25 percent – and industrial – 11 percent.
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 Los Angeles. Elsewhere, Seoul and Melbourne also made strong gains.
In terms of the fastest-growing cities for commercial real estate investment, the continent with the most locations within the top 25 is the US. 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 $600 million mark, as investors look for core opportunities in city centre 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 totalling $1.6 billion – Deutsche Bank Twin Towers and OpernTurm. In Asia Pacific, Seoul was the best-placed city, ranking ninth.
Hutchings added: “The research highlights the way the cityscape is evolving, with different centres competing with other but also cooperating and in many cases specialising to give themselves an edge. If investors only focus on the biggest cities, they may actually be missing out on opportunities to get better diversification in their portfolio.”