Change at the top?

WINNING IN GROWTH CITIES

2016/2017

Capital Markets | Cushman & Wakefield

Trends in the Global Market

Source: Cushman & Wakefield, RCA

$0

$200

$400

$600

$800

$1,000

$1,200

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

AN

NU

AL

VO

LU

ME

S (

US

D B

N)

Ex D

EV

EL

OP

ME

NT

PR

IME

YIE

LD

–A

LL

SE

CT

OR

AV

ER

AG

E

Top 25 Cities Rest of Market Global Yields• Global property investment rose 0.5% in the

year to June but volumes for income producing

assets fell and the market has clearly paused for

breath after a busy 2015.

• The largest gateway cities have increased their

share of the market, but they too saw volumes

fall in absolute terms.

• Nonetheless, with the scale of change underway

in the macro environment, more investors are

turning to the stable cash flow and inflation

hedging merits of real estate, particularly given

that the occupier fundamentals of the market are

generally holding up well.

• As a result, this market pause looks unlikely to

become a reverse, at least for quality real estate.

• The globalisation of the market has continued

meanwhile with cross border capital gaining

market share. The top five global investors have

been the USA, China, Singapore, Canada and

Qatar.

• Targets for foreign investment have shifted

somewhat, with cross border flows growing

faster in the Americas and Asia than Europe and

the ranking of cities also changing.

Growth slows as capital flows evolve

Capital Markets | Cushman & Wakefield

A strong year for US cities

Top Targets for Investment

TOP MARKETS: YEAR to JUNE 2016• The top 25 cities attracted 53% of investment in the year to June

but volumes fell in some, with 10 of the top 25 down.

Nonetheless, market share rose, with overall volumes into the

top 25 down 4.6% versus a 7% drop in the rest of the market.

• The greater appeal of the US has been notable, with its cities

dominating in all sectors and Tier 2 markets also in favour.

Overall, 24 of the 50 fastest growing larger cities were in North

America,18 were in Europe and 8 in Asia.

• In Europe, Tier 1 cities Paris, Amsterdam and Milan are in the

top growth list but Tier 2 cities also feature heavily, led by

Copenhagen, Rome and Helsinki together with regional UK and

German markets. Asian representation in the growth list was led

by Chongqing, Shenzhen, Shanghai and Beijing in China, as

well as Fukuoka, Singapore, Mumbai and Taipei.

• Cross border players meanwhile cut their investment into bigger

cities slightly more than domestic players, as they pursued more

opportunities in Tier 2 cities. The most notable shift has been

London losing its global crown to New York, but a range of other

gateway markets were down, such as Tokyo, Washington and

Frankfurt, due to limited supply and strong local competition.

• By city, 10 of the top 25 cross border targets were in EMEA, 6 in

Asia and 9 in North America and while Asia and America saw

greater global interest, market share still varies significantly, from

16% in the Americas, to 30% in Asia and 47% in Europe.

0.0 50.0 100.0

Melbourne

Philadelphia

Houston

Toronto

San Diego

Amsterdam

Sydney

Berlin

Phoenix

Denver

Shanghai

Seattle

Hong Kong

Atlanta

Miami

Boston

Dallas

Chicago

Washington DC

Tokyo

Paris

San Francisco

London

LA

New York

AN

NU

AL

TO

JU

NE

(U

SD

BN

) –

EX

CL

UD

ING

DE

VE

LO

PM

EN

T

2015/16

2014/15

Capital Markets | Cushman & Wakefield 4

Sustained low interest

rates, expectations of higher

inflation and volatility in all

asset classes underline the

role of real estate in portfolio

diversification. Furthermore,

with changes to society and

business only accelerating,

the importance of the right

property is increasing –

suggesting profit potential will

be enhanced for the best

even as it falls for weaker

property.

Property Performance

Capital Markets | Cushman & Wakefield

Americans are the most global investors but Asian capital is closing the gap

International Capital

0

10

20

30

40

50

60

70

80

90

Asia Pacific Europe NorthAmerica

Middle Eastand Africa

LatinAmerica

US

$ b

nJune 2

016

Between regions Within region

Inter and Intra Regional Buyers

0

20

40

60

80

100

120

Americas Europe Asia Pacific MEA

US

$ b

nY

ear

to J

une

2012 2013 2014 2015 2016

Sources of Cross Border Capital

Capital Markets | Cushman & Wakefield

Offices dominate - particularly for foreign buyers

Investment by Sector

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Multi-familly Hotel Industrial Office Retail

June 2

016

Market Cross Border

Market Share

-35%

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

Hotels Retail Industrial Offices Multi-family

Year

to J

une

Market Cross Border

Growth in Investment 2015/6

Capital Markets | Cushman & Wakefield

Similar cities dominate – but US cities above all

Top 10 Targets by Sector

Rank

Yr to June

Retail Office Industrial/

Logistics

Multifamily Hospitality

1New York New York Los Angeles New York New York

2Los Angeles London San Francisco Los Angeles London

3London Paris New York Dallas San Francisco

4Tokyo Tokyo Chicago Washington DC Los Angeles

5Chicago Los Angeles Dallas Atlanta Chicago

6Miami San Francisco Atlanta Denver Tokyo

7Hong Kong Shanghai Boston Miami Miami

8San Francisco Boston Hong Kong San Francisco Washington DC

9Dallas Washington DC Sydney Phoenix Boston

10Las Vegas Hong Kong Seattle Seattle Paris

Top 10 rank in 5 sectors

Top 10 rank in 3 sectors

Top 10 rank in 1 or 2 sectors

Capital Markets | Cushman & Wakefield

Rivals Compared

Markets vying to win at London’s expense?

Market Size Values & Cost Business Environment:

Office

Stock

Real Estate

Inv, ex Dev

Prime

YieldCost of living,

Rank 1 is high

Economic

Freedom

High score best

Ease of Doing

Business, Rank 1 is best

C&W -

Mn sqm

RCA, USD bn, yr

to JuneC&W Mercer

Heritage

FoundationWorld Bank

London 25.5 39.38 3.25 17 76.4 6

New York 36.8 82.56 4.35 11 75.4 7

Tokyo 24.2 25.5 3.89 5 73.1 34

Paris 20.1 25.74 3.25 44 62.3 27

Berlin 18.3 10.71 3.9 100 74.4 15

Toronto 16.3 8.99 4.5 143 78 14

Brussels 13.3 2.19 5.5 86 68.4 43

Frankfurt 12.1 7.44 4.35 88 74.4 15

Madrid 11.6 5.23 4 105 68.5 33

Dubai 9.3 0.31 7.25 21 72.6 31

Shanghai 8 12.75 5.42 7 52 84

Amsterdam 6 9.26 5 64 74.6 28

Hong Kong 5.5 14.62 2.77 1 88.6 5

Sydney 5.1 10.09 5.34 42 80.3 13

Dublin 3.3 4.21 4.25 47 77.3 17

Singapore 2.1 7.5 3.33 4 87.8 1

We are some way from knowing the likely

form of Brexit but it is clear there will be a

range of contenders to gain from the

process, including those benefitting from

a shift in trade and investment as well as

those seeing demand diverted and

growing in influence as a result.

In particular, the loss of passporting rights

could see a shift of some financial service

functions within Europe.

However, while Brexit has the potential to

change the global hierarchy, given the

relative appeal, skills and sizes of global

cities, gains are likely to be thinly spread,

with no single market winning out.

Indeed, while London lost its role as the

focus for global investors due to Brexit

and high pricing, it nonetheless remains

EMEA’s leading investment target.

London is likely to continue to reinvent

itself, just as it has in the past, and to vie

with New York to be the leading global

city. In fact while London could lose some

European importance, it could become

even more global in the years to come.

Capital Markets | Cushman & Wakefield 9

In such a competitive

environment, cities must do

more to attract workers, not

just rely on workers flowing

their way. This means creating

a brand value that young

people identify with, focusing

on health and security more

than at present, keeping pace

with technological change and

making a contribution to

lifestyles.

Changing Cities

Capital Markets | Cushman & Wakefield

Longer, Flatter Cycle

Markets awash with liquidity

• Much of the world economy is still flooded with

liquidity via QE and loose policy but with the

interest rate cycle turned in the US, the clock is

ticking louder than some think.

• Policy normalisation and an unwinding of QE

will be very slow but fraught with problems.

• Inflation is set to increase meanwhile, albeit

gradually, while credit conditions are mixed

despite Central Bank action.

– Bullet 2

Global Trends Ahead

Focus on the fundamentals for 2017

Volumes stable

Strong demand thwarted by supply

• In a risk averse market core property owners

are proving reluctant to sell.

• Activity is still expected to increase in H2

however as global liquidity and low interest

rates drive demand.

• Yields globally will be pushed lower and

profit taking and portfolio restructuring will

bring more supply on to the market but will it

be enough to meet demand?

Risk

A new era of risk and opportunity

• Risk will remain elevated and volatility high and

this will drive more demand for core real estate

• Cities need to be connected, mixed-use,

walkable and transit rich. Increasingly,

however, they also need smart design and a

focus on their target audience

• The way property is being used is changing but

supply cycles are failing to keep pace, bringing

opportunities to create and reposition stock

Global Flows

Go global for opportunities.

• The globalisation of the market continues, with

cross border capital gaining market share and

more investment also going into local platforms

• American money dominates but Asian capital is

catching up and all regions are active abroad

• Targets for foreign investment will shift, with

cross border flows growing faster in the

Americas and Asia but Europe still favoured by

the risk averse.

Looking ahead,

we see stabilising

markets but with

ongoing risk and

change, if anything,

accelerating from

technology, the

environment, social

and demographic

pressures.

As a result, occupier

requirements will

continue to evolve and

the relative strengths of

different cities will

change.

David Hutchings

Head of EMEA Investment Strategy

+44 (0) 20 7152 5029

+44 (0) 7793 808029

david.hutchings@cushwake.com

CUSHMAN & WAKEFIELD LLP

43/45 Portman Square

London, W1A 3BG

Tel.+44 20 7935 5000