Los Angeles took second spot, while San Francisco climbed three places to third – in the process overtaking London in fourth and Paris in fifth.
The USA took 13 of the top 25 places in the global ranking, nine of which saw volumes rise on the previous year, led by Boston (up 66%), Seattle (+38%) and San Francisco (+35%). This has been led by robust domestic demand and the enduring appeal of core, liquid real estate markets given the low level of returns from alternative investments and the low cost of finance.
Asia-Pacific (APAC) claimed seven of the top 25 cities, with Tokyo (8th) reclaiming regional top spot from Hong Kong. Europe meanwhile had five cities inside the top 25 locations, led by London (4th) and Paris (5th), with Madrid clearly the fastest growing European target, with volumes up 144% to take 21st place overall (3rd in Europe).
David Hutchings, Head of Investment Strategy, EMEA Capital Markets at Cushman & Wakefield and author of the report, commented: “Spain is increasingly favoured by international capital thanks to the relative pace of recent growth and is a reminder to other countries of the rewards economic and structural reform can bring – despite having had its own share of political uncertainty.”
Sixteen of the destinations in the top 25 were in growth mode and the top 25 overall again outperformed, with volumes rising 5% and their market share increasing from 53% to 56% as investors focussed on the biggest and most liquid markets.
Cautious Global Picture
According to Cushman & Wakefield’s data, overall investment volumes in real estate have plateaued, reaching US$1.02tn – a 0.7% fall. Nonetheless, demand remains at record levels with domestic and regional investors, rather than global players, driving activity. High pricing and stock shortages have held back activity, with investors by and large unwilling to embrace riskier markets or push up pricing given the uncertain interest rate and growth environment.
Trends were quite different market by market, with North America posting a near 13% gain in activity – its strongest performance in five years – while Europe and Asia saw volumes fall 12% and more precipitous declines were seen in Latin America (-38.5%) and the Middle East (-65.5%).
Carlo Barel di Sant’Albano, Head of Global Capital Markets at Cushman & Wakefield, stated:
“Ongoing headwinds, such as geopolitical unrest, means economic growth will remain in doubt in the months ahead, but it also means quantitative easing and negative interest rates are back on the agenda. As a result, property yields will be seen to offer better value and could fall into 2020 once investors have more faith that the cycle still has some life in it. However, buyers will have to find additional opportunities if they are to allocate capital, with a particular focus on alternatives and residential/multifamily likely to be seen.”
Cross Border Investment
Among international buyers, London is once again the market to beat, with Brexit considered a tactical issue with respect to timing and price rather than a structural hit to its appeal. New York came back strongly to regain second place amidst increased competition from a range of cities such as Paris, Madrid and Sydney. Volumes spent by cross border investors dropped 2.7% on the year.
Due to a mix of risk, liquidity and steady growth, European cities remain most popular with foreign investors, with 12 of the top 25 global targets, followed by seven in the USA and six in Asia. However, the most impressive gains in market share over the past year were seen in Asian cities, most notably Beijing, up 52 places in the global ranking, as investors sought new opportunities, particularly in higher-growth markets.
The sources of capital crossing borders into real estate also grew more diverse in the past 12 months. For the fourth year running APAC – led by Singapore and South Korea – remained the biggest source region overall despite outbound volumes dropping nearly 13% and its market share easing to 38% overall. By contrast, North American capital increased 18%, capturing a market share of 30%, its highest share since 2015. European outbound capital rose 3.3% to 27% of all cross-border spending.
David Hutchings added: “What differentiates markets going forward will be less about growth – that will be down – but more about relative financing costs, the timing and direction of structural market shifts and, as ever, finding stock in a global market with relatively limited distress.
“We expect more M&A activity as a result but also more pressure on investors to diversity to both gain exposure to the right cities and to reduce risk. Residential will be the asset class to watch and will continue to rise as the professionally managed rental sector continues to grow and mature.
“The winning markets of 2020 will be the biggest and best across gateway and challenger cities, but increasingly those with the right mix of strong innovative governance on the one hand and appeal to talent on the other.”