US Cities Dominate Global List of Top Markets for Real Estate Investment

Courtesy of Tony Wilbert
CoStar - October 8, 2019
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New York, Los Angeles, and San Francisco lead the list of cities around the world attracting more money, a new report shows, even as global investment in real estate has plateaued in the past year.

The strong performances of U.S. cities resulted in North America posting a gain of almost 13% in global real estate investment in the 12 months ended in June, while cash flowing into Europe and Asia each slid 12%, according to global property brokerage firm Cushman & Wakefield's Winning in Growth Cities 2019/2020 report. Thirteen of the world's Top 25 markets for real estate investment are in the United States, the report found.

Investors across the globe know and trust U.S. commercial property markets in gateway cities such as New York City and Los Angeles that anchor their regional economies, said Robert Paul Fransen, president and managing partner of Coro Realty Advisors. The investment and development firm owns properties across the U.S. Southeast, and invests principally with and for wealthy individuals and families based in Japan, Germany, the Netherlands and the United States, and it isn't affiliated with the report.

Top U.S. regions such as "the Boston-to-D.C. corridor, Los Angeles and San Francisco attract capital because they are considered safe, stable and, to the extent that real estate can be, liquid," Fransen said in an interview analyzing the findings. "Whether in Rome, Italy, or Rome, Georgia, everyone knows New York and LA, and believes they will continue to grow."

Overall, global investment in real estate totaled $1.02 trillion, representing a 0.7% drop as of June 30, according to the brokerage's Global Capital Markets group.

New York City, the world's No. 1 real estate investment market, tightened its grip on the top spot as its overall volume grew 20% to $60.6 billion for those 12 months. Los Angeles ranked second with $41.3 billion and San Francisco placed third with $35 billion in property investment, according to Cushman & Wakefield data.

The findings show investors worldwide have confidence in U.S. markets, especially in its major cities, because of the country's relatively strong economy with unemployment at 50-year lows and a business environment that's less affected by geopolitical strife, real estate investors and analysts told CoStar News.

Global investors are attracted to countries such as the United States where perceived outside risks such as geopolitical unrest are lower, said Jon Wiley, director of the commercial real estate master's program at Georgia State University in Atlanta. "You're seeing the flight to quality," Wiley said in an interview. "On the flip side, London has risk" because of the uncertainty around its planned departure from the European Union.

In the first half of 2019, investment sales of commercial properties in the U.S. totaled $261.4 billion, according to CoStar data. That represents a 1% increase over the same time last year.

London, Paris Investment

London attracted $30 billion in real estate investment during the 12 months and ranked as the fourth-largest market globally and the largest outside of the United States. Paris placed fifth with $28.5 billion, the report stated. Both of those European cities saw their investment volume drop during that time.

While demand is strong, "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," Cushman & Wakefield said. "As a result, the biggest cities have been most in-demand, with their market share increasing in all regions. By sector, investors have continued to spread their net more widely, with residential the strongest area of growth last year."

In its report, Cushman & Wakefield said investors still like secondary cities in the United States. "A range of tier 2 cities remain strongly in favor, such as Atlanta, Dallas, Denver and Phoenix, with incoming investment and business relocations underpinned by a combination of quality of life and affordability," Cushman & Wakefield said in the report.

Dallas ranked as the sixth-best city as real estate investment increased 16% to $23 billion for the year. Dallas topped competitors including Washington, D.C., at $21.7 billion; Tokyo at $19.7 billion; and Hong Kong at $19.2 billion, according to the Cushman & Wakefield report.

The emergence of Sun Belt cities such as Dallas and Atlanta as competitors for top-tier status is interesting, Georgia State's Wiley said. "Normally when you hear 'Gateway city,' you don't [think] Atlanta and Dallas," he said. "It's been interesting to see that shift over time."

Wiley said much of the shift can be attributed to "price side of that" as investors see relative commercial property bargains in Atlanta and Dallas, where plenty of available land exists and barriers to entering and building in the markets is low.

Global investors also are attracted to the Sun Belt cities' demographics, Coro Realty's Fransen said. "Areas like Atlanta, Dallas and Houston offer affordable housing, low to no income taxes, good public schools and universities, and a warm climate," he said. "These factors have led to population and job growth well above national averages. Population and job growth are among the largest drivers of real estate investment."

Worldwide, London ranked as the top city for cross-border investment, even as the money spent by inbound investors dropped 26% on the year as uncertainty centered on Brexit took its toll on pricing and confidence.

"Among international buyers, London is again the market to beat, with Brexit considered by many, to be a tactical issue with respect to timing and price, rather than a structural hit to its appeal," Cushman & Wakefield said in the report. New York came back strongly to regain second place with international buyers against competition from cities such as Paris, Madrid and Sydney, it said.

During the 12 months, New York surged ahead of Paris into second place for inbound investment, thanks to "a handful of major deals from Canadian and German players in particular, led by Brookfield and Allianz," the Cushman & Wakefield report said.

Overall cross-border investment, however, dropped 2.7% on the year, according to the report.

Looking ahead, Carlo Barel di Sant’Albano, head of Global Capital Markets at Cushman & Wakefield, said headwinds such as the economic unrest in Hong Kong will cast doubts on economic growth in the months ahead.

"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," di Sant’Albano said in a statement. "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.”