The global flow of capital for commercial real estate investment reached $788 billion during the 12-month period ending June 30, 2014, a 17.2 percent increase over the prior year, according to Cushman & Wakefield’s annual Winning in Growth Cities report. The commercial real estate services firm unveiled the findings at EXPO REAL 2014 in Munich, an annual international trade fair for commercial real estate investors. For the report, Cushman & Wakefield tracked commercial property acquisitions of $5 million or more.
According to the report, New York is the world’s largest real estate investment market for the fourth consecutive year. Investment volume in the city rose 10.9 percent to $55.4 billion in the trailing 12 months from the second quarter 2014. This equates to 7 percent of the global market share.
Second-place London closes the gap on New York with a 40.5 percent increase in investment activity. London is also the largest global market for cross-border investors, which drove the market higher with a 39 percent increase compared to 11 percent growth among domestic buyers.
Tokyo reclaims third position in the ranking from Los Angeles with a strong 30.4 percent investment increase. Los Angeles drops to fourth place with $33.1 billion, while San Francisco completes the top five ranked cities with $23.8 billion invested.
“Competition, growth and change will bring forth more new global winners. While gateway cities remain a primary focus for investors, interest in a broader spread of locations is increasingly apparent due to improved confidence and finance availability as well as a lack of supply in core cities,” says Carlo Barel di Sant’Albano, international CEO of Cushman & Wakefield. “Risk appetites have expanded in the U.S. and buyers in Europe and Asia are following suit, particularly where local partners can be found.”
The top 10 cities for global investment changed little from last year, with the exception of Dallas moving into ninth place at the expense of Houston (11th). Shanghai, Beijing, Miami and Stockholm join the top 20, while Toronto, Singapore, Moscow and Seoul fell out. Dubai and Dublin saw significant change and leaped into the top 50 from 186th and 82nd position, respectively.
Top cities continue to be popular across multiple sectors with New York top in retail, multifamily and hospitality, London top for offices, Los Angeles top for industrial and Tokyo a top five market in retail, office and industrial.
While Europe remains the biggest region for foreign investment — it saw a 35 percent growth in cross-border buying last year — growth has actually been more rapid in the Americas (46 percent) and Asia (43 percent). London remains by far the most favored market with a 14.1 percent share versus 5.5 percent for Paris and 4.9 percent for New York. The fastest growth was in Beijing, rising from 46th to 17th place, followed by Boston, Amsterdam, Madrid and Sao Paulo.
The biggest source of cross-border capital was the Americas, with $75.3 billion invested. Europeans are the No. 2 cross-border buyer, but a significant share of this is targeted within the region. American investors were the strongest players outside their own region last year, with $58.7 billion invested, 48 percent of the global total.
The fastest-growing stream of international investment however has been Asian capital flowing out of the region. Asian global investment rose 56 percent last year compared to a 54 percent increase by American investors, 26 percent by Europeans and 13 percent by Middle Eastern and African players. Typically, Asian investors cross borders easily, but much in the past has been within their own region. That has changed dramatically in recent years as Asian businesses have diversified abroad, focusing initially on gateway cities in the United States and the United Kingdom but now spreading their net more widely, according to the report.
“Core markets still offer attractive returns for core investors, but those seeking higher returns are having to take on risk either in core markets or by targeting quality assets in second-tier locations,” says David Hutchings, head of EMEA investment strategy at Cushman & Wakefield. “However, caution is needed as real estate usage is evolving as tenants adjust to new technology, new working practices and demographic change.”
Click here to read Cushman & Wakefield’s full Winning in Growth Cities report.
— Staff Reports