Global Markets in Focus

Knight Frank’s capital markets experts look at the key trends of the past decade, future opportunities for private investors and landmark deals in their market


 

London - Deborah Watt

TRENDS OF THE DECADE

Ten years ago UHNW investors looked to trusted Central London office locations, particularly Mayfair, High St Kensington and core City, with the more adventurous venturing into Soho or Covent Garden. Investments would often be freehold, with a 10-year plus lease and no more than two tenants.

Today, multi-let properties with well-timed lease expiries and rent reviews are favoured. New areas include the City fringe, Farringdon, Clerkenwell, Bloomsbury (all benefiting from Crossrail) and Paddington. They are also branching into the UK’s regional cities and different sectors such as logistics and student accommodation.

We have seen Dubai airport overtake Heathrow as the busiest airport by international passenger numbers and Dubai overtake New York in respect of overnight tourist numbers per annum

FUTURE OPPORTUNITIES

I would be looking at offices in good CBD locations in key regional UK cities, such as Birmingham, Manchester and Edinburgh. Multi-let offices in Bloomsbury, Farringdon and Old Street/Moorgate, where there is the opportunity to refurbish and reconfigure to improve rental levels, and where the micro location will benefit from new Crossrail stations.

LANDMARK DEAL

The Aviva Tower, which Knight Frank sold to a private Asian investor who outbid the institutional sector, was the first of three skyscrapers acquired by international UHNWIs.

Germany - Ole Suer

TRENDS OF THE DECADE

Berlin is now a significant target for global investors, particularly those attracted by its young, creative business environment. Besides local and other European players, international developers such as Hines and Tishman Speyer are currently very active.

Only a few office developments were built before 2012, but, within the last 36 months, potential prime locations such as Europa City and the Media Spree area have been established, driven by the city’s dramatic IT expansion.

FUTURE OPPORTUNITIES

Berlin’s growing start-up community will continue to drive the office market as new creative areas are established. Over the next three to six years investors will discover different types of investment. This will provide office opportunities in city locations such as Charlottenburg, Kreuzberg and Tiergarten, which are not yet prime but have growth potential for rents and yields. The eventual opening of the city’s new airport can only help.

LANDMARK DEAL

Kurfürstendamm 212-214 was a rarely available prime high-street opportunity. We acted for a Berlin-based family on the acquisition of this €84m investment.

Middle East - Joseph Morris

TRENDS OF THE DECADE

Dubai has emerged as a global hub for financial services, logistics, hospitality and trade. Its airport has overtaken London Heathrow as the busiest by international passenger numbers and the Dubai International Finance Centre (DIFC) is the region’s leading financial hub.

These factors have fuelled the development of new master communities and a CBD and attracted significant investment from neighbouring GCC countries and the wider region, including India and China.

FUTURE OPPORTUNITIES

We see continued investment from the Gulf into other key international markets as diversification remains paramount. As more international corporations establish regional headquarters and expand and consolidate existing office space, there will be a greater focus on quality in Dubai. We see opportunities in well located, wholly owned Grade A office developments and in logistics warehouses connected to the new Dubai airport.

LANDMARK DEAL

The acquisition of the super-prime Rolex Unit at One Hyde Park, Knightsbridge, London, highlights the continued demand for best-in-class assets in key global cities. Knight Frank acted for a private Middle Eastern investor in this transaction.

Africa - Peter Welborn

TRENDS OF THE DECADE

There has been a sea-change in attitudes towards Sub-Saharan Africa over the past decade, as a rising number of investors have recognised it as a region of longterm growth and opportunity. Although most markets, with the exception of South Africa, remain small by international standards, modern property development has gathered pace and the stock of investment-grade commercial property has increased.

Private intra-Africa investment by UHNWIs is increasing as is the amount of money being invested by individuals from the Gulf, particularly into Muslim countries including Senegal. South African funds and trailblazing UK-based emerging market specialist Actis are also active.

FUTURE OPPORTUNITIES

Large, fast-growing cities, such as Nairobi, Lagos, Dar es Salaam and Luanda will continue to offer the clearest investment opportunities. The growth of Africa’s consumer class will create opportunities for further development in the retail sector – both in the current hotspots and in second-tier cities where developers may be able to gain first-mover advantage. The logistics sector should also emerge in importance, particularly in key gateway locations such as Lusaka, Zambia.

LANDMARK DEAL

Developed by Actis, the first phase of Nairobi’s 33,000 sq m Garden City mall opened in 2015. It is the largest mall in East Africa.

Asia Pacific - Neil Brookes

TRENDS OF THE DECADE

As the past decade’s growth engine of the world economy, the Asia-Pacific region has seen a number of significant trends. The expansion of interest in commercial property from a swelling population of wealthy individuals has perhaps been the most notable. We’ve seen private capital from Hong Kong, Singapore, India, Malaysia and most notably, China, buying in key western markets, such as the UK, Australia and the US. Domestically, we’ve seen numerous tiers of private capital attracted to opportunities in local commercial markets, often spurred by the cooling measures placed on the region’s residential markets.

FUTURE OPPORTUNITIES

Assets in the key Western markets will continue to be targeted by Asian private investment, while a slow maturing of domestic markets and the growth of different methods of investing – from REITs in India and China, to syndicated or club-type deals that increase UHNWI exposure to the commercial real-estate market. Asset classes showing growth prospects in locations that provide transparency, wealth preservation, liquidity and security will be most in demand.

There has been a sea-change in attitudes towards Sub-Saharan Africa over the past decade, as a rising number of investors have recognised it as a region of long-term growth and opportunity

LANDMARK DEAL

The sale of 50 Bank Street, Canary Wharf, London, for £153.5m to a prominent Hong Kong family illustrates how private Asian capital is moving away from low yielding domestic markets.

India - Rajeev Bairathi

TRENDS OF THE DECADE

As a credible investment class from a global standpoint, the technology sector has been the most significant force in the emergence of commercial real estate in leading cities. Besides Mumbai, which has a diversified occupier base, other cities like Delhi and Bengaluru have been the prime beneficiaries of this tech boom. India is attracting global investors such as Blackstone, while Indian investors are diversifying globally into development and core assets in gateway cities such as London. The “Modi effect”has been crucial in both the import and export of capital.

FUTURE OPPORTUNITIES

Technology is now one of the core differentiators for many businesses across all sectors. Such dynamics will benefit cities with the right combination of technology talent, affordable real estate, superior infrastructure and a vibrant living environment.

Bengaluru for instance will reap the benefits of this transformation. In 2013 to 2015, the technology sector contributed 58% to the city’s total office demand of 26 million sq ft.

LANDMARK DEAL

In 2015 India’s largest office deal of around two million sq ft in Mumbai’s peripheral business district was agreed to a technology sector giant.

Hong Kong/Mainland China - Paul Hart

TRENDS OF THE DECADE

Chinese institutional investors have dominated the market in the past, including the China Life Insurance (Overseas) purchase of the west tower of One HarbourGate, Hung Hom, Kowloon, Hong Kong, for US$755m. Now we are starting to see a new wave of Chinese investors venture offshore. Private UHNWIs, typically developers and industrialists, have been making quite a stir. Unlike earlier investments by Chinese institutions focusing on trophy assets, these new investors dominate small to mid-cap private investments in primary and secondary locations. The US and Western Europe are key targets.

FUTURE OPPORTUNITIES

The US remains the stand-out location for UHNWIs, but Hong Kong, being closer to home, is also considered an attractive location for them to invest in commercial property in decentralised locations. Yield compression in London will make the UK’s provincial cities more attractive.

In Australia, Sydney and Melbourne still present high-yield opportunities, but we are expecting to see some spill-over into Brisbane off the back of Echo Entertainment’s recent casino deal.

LANDMARK DEAL

Kuafu Properties, a New-York based developer backed by a Chinese private fund, has acquired four US properties one year after entering the market, spending over $500m.

Australia - James Parry

TRENDS OF THE DECADE

Ten years ago, the Australian investment market was dominated by local buyers. Since then, it has become increasingly attractive to offshore investors including UHNWIs, who are among the most active buyers in this market. Until about five years ago, offshore investors were looking to Sydney and Melbourne, but now we are seeing these buyers invest across other Australian major cities including Perth, Brisbane, Canberra and Adelaide.

Offshore buyers are coming from all over the world, but in recent years Asia-based investors have been the most active buyers, with Singapore, Kuala Lumpur, Hong Kong and China leading the charge.

FUTURE OPPORTUNITIES

Location-wise, we continue to see exceptional buying opportunities in counter-cyclical markets such as Perth and Canberra. Secondary stock has excellent fundamentals in the Sydney CBD and metropolitan markets. The generous yields and stable markets of Adelaide are attracting investors, while Brisbane, which is a market affected by the slump in the resource and commodities sector, is generally considered at, or near, the bottom, with an increase in buyer activity.

LANDMARK DEAL

The Australian Technology Park sale on the fringe of Sydney’s CBD for AU$263m during late 2015 set a new benchmark (5.75%) for core yields in a non-CBD location.

The San Francisco Bay Area is now home to more than half of the world's 'unicorns' start-up companies with valuations greater than $1bn

New York - Alex Foshay

TRENDS OF THE DECADE

International capital investment has increased significantly into New York City over the past three years. It now accounts for more than 16% of all transactional activity in the US. In the past 12 months, 38% of all Manhattan real estate investment has been from international investors.

UHNWI investment in New York is a significant part of that and has come predominantly from China, Singapore, Brazil, Canada and the Middle East. A key investment from two UHNWIs was the minority interest purchase in the GM Building/767 Fifth Avenue by Zhang Xin and a Moise Safra-led company for approximately $1.4bn.

FUTURE OPPORTUNITIES

Brooklyn is a New York City metro market that has experienced sharp increases in both supply and demand and will continue to offer opportunities to UHNWI investors over the next 10 years.

It remains a market of choice among creative types due to its burgeoning communities and proximity to Manhattan. Inventory is growing as developers such as Boston Properties, Rudin, Jamestown and RFR construct and redevelop millions of square feet. New tax legislation that makes it easier to invest in property will have a major impact.

LANDMARK DEAL

In 2015, Bank of China acquired Seven Bryant Park in the heart of Midtown Manhattan for $600m and will occupy approximately 60% of the asset.

US West Coast - Daniel Cressman

TRENDS OF THE DECADE

Foreign UHNWIs have always been competitive in San Francisco’s commercial real estate market, particularly those from Asia Pacific and the Middle East. While many invest directly, we’ve seen a majority enter the market as capital partners with growing local and regional operators.

UHNWIs provide these groups with tremendous flexibility in terms of capital and timing. They are generally less concerned with upfront returns and willing to hold for longer periods than domestic investment funds. 

FUTURE OPPORTUNITIES

The San Francisco Bay Area is now home to more than half of the world’s ‘unicorns’ – start-up companies with valuations greater than $1bn. We are starting to see tech spilling over across the region, most recently with Uber’s entry into downtown Oakland. The rapid growth and insatiable tenant demand has created many valueadd opportunities, especially among properties that have yet to catch up to market rents. 

LANDMARK DEAL

The new 61-storey Salesforce Tower will be San Francisco’s tallest office structure. Salesforce’s lease of the majority of the tower epitomises tech’s dominance in the San Francisco market in recent years.

Ten years ago, the Australian investment market was dominated by local buyers. Since then, it has become increasingly attractive to offshore investors including UHNWIs