Knight Frank launches Global Cities: The 2016 Report; Three of the top five global cities for office rental growth forecasts are in Asia Pacific.

 

Knight Frank launches Global Cities: The 2016 Report

Three of the top five global cities for office rental growth forecasts are in Asia Pacific; India, Malaysia & Singapore receive highest percentage of foreign investment in H1 2015

 

Knight Frank, the independent global property consultancy, today launches Global Cities: The 2016 Report, examining the market performance of 20 global cities across the world, of which 10 are in Asia Pacific.

The UN is forecasting the world’s cities to increase in population by 380 million people in the next five years. Consequently, the planet will need to build the equivalent of five cities the size of Los Angeles every year between now and 2020, and all the supporting infrastructure.

 

This increased urbanisation, combined with greater demand driven by economic growth, will cause office rents to rise in the key global cities. Knight Frank forecasts that Madrid will top rental growth at 22.2% by 2018, followed closely by Mumbai (21.3%) and San Francisco (20.2%).
Nicholas Holt, Head of Research, Asia Pacific, Knight Frank Asia Pacific, says, “Despite the slowdown of China and its impact on the region’s economies, the Asia Pacific region will still see relatively strong economic growth over the coming years. Coupled with the huge forces of urbanisation in India and China, the next three years are still very much a growth story for the Asian Global Cities.

 

“Three of the top five global cities for office rental growth over the next three years are forecast to be in Asia Pacific, with the Indian cities of Mumbai and Bengaluru, benefitting from a strengthening economy, in second and fifth place respectively.”

 

Forecast Office Rental Growth (end 2015 to end 2018)

Ranking	Global City	% Change
1	Madrid	22.2%
2	Mumbai	21.3%
3	San Francisco	20.2%
4	Melbourne	15.8%
5	Bengaluru	15.8%
6	London	13.6%
7	Los Angeles	12.5%
8	Hong Kong	12.0%
9	Paris	9.8%
10	Chicago	9.3%
Ranking	Global City	% Change
11	Washington DC	8.5%
12	Sydney	7.7%
13	Shanghai	6.1%
14	New York City	5.8%
15	Tokyo	5.3%
16	Delhi	5.0%
17	Frankfurt	3.5%
18	Mexico City	1.5%
19	Beijing	1.8%
20	Singapore	-3.0%

 

Source: Knight Frank Research, Newmark Grubb Knight Frank Research, Sumitomo Mitsui Trust Research Institute

 

Marcus Burtenshaw, Executive Director and Head of Commercial for Knight Frank Thailand, comments, “Bangkok has been highlighted as a city to watch and with good reason. New investment incentives targeting the software industry and the digital economy, coupled with initiatives such as improved benefits for regional operating headquarters, should help to support demand. Yet, as occupancies in the city’s high rise office towers climb to over 90% and rents reach record levels, firms are increasingly looking towards so called ‘new’ locations and chief amongst their concerns is convenient access to mass transit. So with over 240km of new mass transit routes currently under construction, we expect that these new lines will breathe new life into the districts that they serve, making them more desirable locations to live, work and play.

 

 

Markets attracting foreign investments

Looking at the total real estate transaction volumes within each market in H1 2015, India has emerged as the market with the highest percentage of foreign investment at 67%, followed by Malaysia (59%) and Singapore (43%).

 

Holt explains, “The growth of foreign private equity investment into the Indian real estate market has been a notable characteristic of the region in the first half of 2015, with US and Singaporean investors the most prominent. In Southeast Asia, Malaysia has also seen a significant percentage of foreign interest with groups from Australia, Singapore, China and Canada, purchasing assets in the first six months of the year. Given the positive economic performance of India, and a potential counter-cyclical approach towards investing in Malaysia (despite the tough conditions), we expect foreign groups to continue to look at these markets in 2016.”

 

Total real estate transaction volumes H1 2015 (US$ million)

Cities	Domestic	Foreign	Foreign investments share of total
India	$493	$998	67%
Malaysia	$1,005	$1,454	59%
Singapore	$2,954	$2,259	43%
South Korea	$1,903	$842	31%
UK	$169,691	$38,710	19%
Hong Kong	$6,872	$1,560	18%
New Zealand	$6,121	$1,170	16%
China	$106,011	$17,902	14%
Thailand	$1,468	$175	11%
Australia	$74,919	$5,575	7%
US	$777,728	$42,456	5%
Japan	$104,284	$3,800	4%

Tan emphasises, “Singapore property remains on the radar for many foreign investors, given the city’s multiple qualities especially in infrastructure and urban planning. Despite the prevailing property cooling measures and downward trend in prices and rents, foreign investors are generally confident of Singapore’s long-term prospects. They are mainly from China, Australia and the Middle East, with the highest investment sale in 2015 clocked in at S$1.67 billion for Paya Lebar Central awarded to the joint venture between Australian developer Lend Lease and sovereign wealth fund Abu Dhabi Investment Authority.”

 

Source: Knight Frank / Real Capital Analytics

 

Neil Brookes, Head of Capital Markets, Asia Pacific, Knight Frank Asia Pacific, highlights, “We are experiencing record transaction levels in the core markets of Asia Pacific such as Sydney and Tokyo, driven by investor demand from the US, Singapore and China. Investors are attracted to these markets by the relatively high returns achievable and the recent weakening of the currencies against the US$.”

 

Destinations attracting Asian outbound capital

A growing wave of Asian outbound capital is targeting core real estate assets in Western markets. Over the last 24 months, Asia investments into the US, UK, Australia and Continental Europe totalled US$78.4 billion.

 

Brookes explains, “We are seeing strong desire from Asian investors to diversify their holdings into markets outside of Asia, particularly Europe and Australia, and a substantial sell down of assets in China due to the worsening economic conditions.”

 

Destination markets from Asia investment (Q3 2013 – Q2 2015)

Destination	US$ million
US	31,032
UK	22,245
Australia	16,283
Continental Europe	8,835

Holt continues, “The last two years has seen a tremendous surge of capital, emanating from Asia, targeting real estate assets in mature western markets.

 

“In terms of the origin of capital, Singapore and China have led the way, with sovereign wealth from the former, and developers and insurance companies from the latter some of the most notable buyers in terms of transacted volumes. Given tough trading conditions in the region and the appeal of geographic diversification, we expect Asian capital to continue to target advanced established cities that offer the best growth opportunities and diversification over the next 12 months.”

 

To the US			To the UK			To Australia			To Continental Europe
Origin	US$ million		Origin	US$ million		Origin	US$ million		Origin	US$ million
Singapore	10,684		Singapore	6,443		Singapore	6,849		South Korea	2,762
China	8,935		China	5,625		China	6,263		China	1,271
Japan	4,373		Hong Kong	2,559		Malaysia	1,371		Singapore	1,128
Hong Kong	3,164		Malaysia	2,229		Hong Kong	1,183		Thailand	1,050
South Korea	2,365		Taiwan	1,900		South Korea	306		Malaysia	1,033
Malaysia	1,007		India	1,420		Japan	241		Hong Kong	1,024
Other	504		Japan	808		Taiwan	60		Other	567
			Other	1,261		Brunei	10

Capital markets opportunities

Jeremy Waters, Head of International Capital Markets, Knight Frank, comments, “We expect advanced industrial nations to drive the global economy in the next three years; with the Global Cities in those nations offering the strongest opportunities for real estate investors.

 

“With the US moving closer to a rate rise, the dollar is strong, and American private equity investors are already buying more stock overseas. We see this trend accelerating in 2016. They tend to be more comfortable with a higher risk profile, so we expect increased interest in sites and short income assets.

 

“In Europe, thanks to low bond yields and signs of economic turnaround, we are predicting more opportunist money will come into the market. In general, we see investors casting the net wider, with specialist property rising up the agenda. In part, this reflects a growing desire to seek diversity in a portfolio.”

 

Over the longer term, commercial real estate has proved its value within a mixed investment portfolio, notably during times when other asset classes have been unstable.

 

Prime Yields – end of 2015 forecast

Ranking	Global City	Prime Yields
1	Bengaluru	10.50%
2	Mumbai	10.00%
3	Delhi	9.50%
4	Mexico City	7.00%
5	Shanghai	6.30%
6	Beijing	6.30%
7	Melbourne	6.10%
8	Sydney	5.75%
9	Chicago	5.40%
10	Washington DC	5.00%
Ranking	Global City	Prime Yields
11	Los Angeles	4.90%
12	Frankfurt	4.50%
13	San Francisco	4.00%
14	New York City	4.00%
15	Madrid	4.00%
16	Tokyo	3.70%
17	Singapore	3.70%
18	London	3.50%
19	Paris	3.50%
20	Hong Kong	2.90%

Source: Knight Frank Research, Newmark Grubb Knight Frank Research, Sumitomo Mitsui Trust Research Institute

 

END

 

 

Notes to editor

• Recent deals managed by Knight Frank

o London

• Walbrook Building – Cathay Life for £575.248m (USD883 million)
• 39 Victoria Street – Ho Bee for £144m (USD221 million)

o Sydney

• 75 Elizabeth Street – Kingold Group for AUD67 million (USD49 million)
• 309 George Street – Private Asian for AUD112.3 million (USD82 million)
• 155 Clarence Street – Union Investment-Germany for AUD120 million (USD88 million)

 

• More about Global Cities: The 2016 Report

o The report sets the context for investors by saying that five new cities, each the size of Los Angeles, will need to be built every year for the next five years to accommodate the expected 380 million new city dwellers. The number of people moving to cities over the next five years will be more than three times the current population of Japan, as they try to make the most of the economic advantages cities increasingly deliver*.

o Cities in high-income countries are projected to rise in population by 34 million by 2020, the equivalent of three cities the size of Paris. City populations in middle-income countries are forecast to increase by 290 million people over the same period, which is about 12 cities the size of Shanghai*.

o The report highlights the following five cities as ones that investors should particularly watch: Dubai, Kuala Lumpur, Bangkok, Nairobi and Moscow.

o To download the report, please visit http://www.knightfrank.com/globalcities.

 

* Source: The United Nations World Urbanisation Prospects, 2014

 

 

For further information, please contact:
Nicholas Holt, Head of Research, Asia Pacific
nicholas.holt@asia.knightfrank.com +65 6429 3595 @nholtKF

 

Rachel Loke, Head of Public Relations & Communications, Asia Pacific
rachel.loke@asia.knightfrank.com+65 6429 3587 @knightfrank

 

 

About Knight Frank

Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank, together with its U.S. alliance partner, Newmark Grubb Knight Frank, operate from 370 offices, in 55 countries, across six continents and has over 12,000 employees. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit knightfrank.com.