New York, Los Angeles Among World's Largest Investment Markets
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Tokyo, New York and Los Angeles represent the world's largest commercial real estate investment markets, with the global stock of investable assets standing at $27.5 trillion, reported CBRE and Cushman & Wakefield.
"The amount of stock available in each market is relevant to investors pursuing a global diversification strategy--a true market-neutral portfolio needs to be weighted by city size," said CBRE Capital Markets Global President Chris Ludeman.
Ludeman noted most investors do not pursue full global diversification, but said many have a more tightly defined strategy, such as core real estate in global gateway cities. "It is important for these investors to know the relative size of the key investment markets to ensure portfolio balance," he said.
The global property investment market saw volumes rise 4 percent year-on-year to $1.5 trillion in the year to June, Cushman & Wakefield reported. "The strong global growth is perhaps something of a surprise given the headwinds faced by the market in 2016, but investor sentiment has definitely improved," said Cushman & Wakefield Head of EMEA Investment Strategy David Hutchings. "With fears of a rise in populism taking a back seat, at least for the moment, globalisation in the real estate sector continues apace."
Hutchings said New York, Tokyo and other large cities continue to adapt and reinvent themselves to reinforce their global hegemony, "[but] competition is heating up with investors' attention landing upon a broader range of Tier 2 cities," he said. "Eighteen markets which were not targeted by cross border investors in 2015/2016 are now making gains, an indication of investor willingness to move into new markets."
CBRE examined the relationship between city market size and capital flows into real estate for 122 cities around the world. It found a "high correlation" between the size of a city's real estate stock and the volume of investment into that city.
Tokyo remains the world's largest single market with a total value of investable real estate exceeding $710 billion, followed by New York with $657 billion and Los Angeles with $482 billion. Paris ($342 billion) and London ($334 billion) are the biggest European markets.
The 10 largest cities accounted for nearly $4.0 trillion--15 percent of global investable real estate stock, CBRE said.
The largest five cities in the Americas--New York, Los Angeles, San Francisco, Chicago and Houston--represent $2 trillion of investable real estate; "a figure that can be attributed to the free market nature of its economy and cities," CBRE said.
The Asia-Pacific regions's five largest cities, Tokyo, Seoul, Osaka, Sydney and Melbourne, amounted to $1.5 trillion, though data were not available for cities in China, the report said.
CBRE attributed the relatively lower total--$1 trillion--in Europe's five largest cities (Paris, London, Madrid, Milan and Munich) to the influence of national boundaries, land-use planning and regional support programs.
The report identified "outlier" cities that do not follow the general trend and attracted either more real estate investment than the market size would suggest or less, CBRE said. "Markets that attracted more investment include relatively smaller U.S. cities such as Tampa (Fla.), Richmond (Va.), Austin (Texas) and Charleston (S.C), while in Europe this trend applied to regional UK cities such as Edinburgh (Scotland), Sheffield (England) and Cardiff (Wales), as well as Oslo (Norway) and Dusseldorf (Germany)."
CBRE also investigated the ratio between the market size and the real estate investment inflow to establish the market's liquidity. From cities with an average turnover of at least $10 billion, London, New York and Dallas mark the top three most liquid markets with 8.6 percent, 7.1 percent and 7.0 percent of stock traded on a yearly basis, respectively. San Francisco, Los Angeles, Washington, D.C. and Paris followed closely, all trading above 4.8 percent.