Big Apple benefits from falling overseas interest in London commercial real estate

NYC remains world’s most sought after target city, with growing levels of investment too in other specialist US industrial centres

PUBLISHED : Tuesday, 02 August, 2016, 2:36pm
UPDATED : Thursday, 04 August, 2016, 4:04pm

Global capital investment is being refocused back onto major US cities, particularly New York, amid the impact of Brexit and increasingly volatile markets around the world.

The Big Apple continues to offer the world’s most sought after commercial real estate, absorbing US$24.3 billion in the first half, although that was a 6 per cent fall on the same period last year, according to the latest figures from property consultancy Jones Lang LaSalle.

Total global commercial property investment dropped 10 per cent in value during the period, to US$292 billion, said the report.

After NYC, Los Angeles ranked second most popular commercial destination in the US, with a huge 40 per cent rise in the period, to US$11.3 billion.

“The attraction the US has at present is that it is forecast to grow stronger than many of the European economies,” said David Green-Morgan, Global Capital Markets Research director at JLL.

“Brexit has obviously had an impact on the flows into the UK and being such a big market that has affected the overall European numbers,” Green-Morgan said.

Even though London volumes were 40 per cent down, it remains the world’s second most popular city globally with US$13.2 billion worth of transactions in the first half, with a substantial drop off in foreign investors within that total.

The shift to the US market has also helped New York pull well away from its main rivals including London, Paris and Tokyo.

The most-notable deals highlighted by the JLL study included Chinese sovereign wealth China Investment Corporation’s US$886 million purchase of a 49 per cent stake in One New York Plaza, a downtown office tower.

JLL said investors are increasingly interested in US cities which have developed specialties in certain industries such as Seattle, those around Silicon Valley and Dallas, as corporates tend to locate their activities close to talented workforces.

By region, globally the most notable increase has been in Asia Pacific where intra-regional flows have increased by 73 per cent in the first six months, the report shows.

“If more volatility or uncertainties arise in other parts of the world, Asia Pacific’s relatively stable collection of nation states and treaties could be viewed more favourably by international investors,” said Elysia Tse, head of research and strategy for Asia Pacific at LaSalle Investment Management.

If more volatility or uncertainties arise in other parts of the world, Asia Pacific’s relatively stable collection of nation states and treaties could be viewed more favourably by international investors
Elysia Tse, head of research and strategy for Asia Pacific, LaSalle Investment Management

The majority of this investment is coming from China and Singapore and is flowing primarily south down to Australia, but also into Hong Kong from the Chinese mainland.

Green-Morgan said he had not seen any great impact of the capital outflow controls introduced by the Chinese government in recent months.

“In the second quarter, China’s (overseas) commercial investment rose 30 per cent compared to a year ago showing there is continued demand by Chinese investors for offshore properties,” he said.

The UK, the US and Australia remain the top three destinations for Chinese outbound capital, he added.

A separate report from CBRE, meanwhile, shows despite overall softened demand, more than 30 per cent of newly leased space in Hong Kong’s Central district during April-June period was taken by mainland Chinese companies.

Dr Henry Chin, head of research at CBRE, Asia Pacific, said China’s strong investment demand is driven by cheap domestic funding after several interest rate cuts.

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