Commercial Real estate in second-tier cities worldwide are very popular

2018-02-01      |      Read num:661

   Last year the high prices demanded of property investors in the world’s “super cities” of London, New York, Tokyo and Paris drove global fund managers towards a second rung of merely excellent cities such as Berlin, Beijing and Seattle.

   Commercial property investment leapt 65 per cent to $30bn in this group of lower-tier destinations. By contrast total spending in 2015 across the world’s top four super cities fell by 10 per cent to $128bn compared with the previous year, according to latest figures from JLL, the international property agency.

   Though super cities may command the weight of investment in commercial real estate, they do not necessarily all offer the best returns. Anticipating swings in returns available across the many dozens of less obvious and unfashionable urban destinations is also part of the task faced by an elite group of global fund managers. It is relatively easy to identify a solid core of favoured locations in the US and Europe. Delivering a shopping list of winning locations to property investors has become more challenging in Asia, however, as regional economic uncertainty has risen.

   Alastair Hughes, chief executive of JLL’s Asia Pacific division, argues that Bangalore, Manila and Shenzhen remain good investment bets. “Each has large, young and fast growing populations,” he says.

   Shenzhen has become China’s Silicon Valley while Manila’s appeal is growing as it experiences the beginnings of an outsourcing boom. For its part, Bangalore has already become a world leader of IT outsourcing.

   Europe offers an increasing range of less obvious attractive destinations. Nine of JLL’s dozen favourite spots in Europe are not prime global locations. Aside from Paris and London, Istanbul, Dublin, Edinburgh and Manchester feature in this list. “There is increasing recognition that success is no longer purely about size but involves a capacity to adapt,” concludes the JLL report, which is scheduled to appear on March 15 at the same time as the MIPIM trade show in Cannes.

Property fund managers spend much time and expense at this annual assembly of industry leaders on the French Riviera, both aboard yachts and ashore, promoting investment strategies and attempting to grab the attention of the world’s biggest pension, life and sovereign wealth funds.

   The running of global funds generates billions of dollars a year in gross fees. The research produced by agents aimed at justifying their strategies to investors provides a useful “map” of the investment world. But it is also often used internally as a “first filter” by fund managers as a stress test on their own sophisticated risk models.

   A series of sales of commercial property in London, New York, Hong Kong and Tokyo in 2015 indicate the warning lights may already have been blinking “sell” for fund managers who control large portfolios of assets in prime cities for at least a year.

   Anthony Myers, Blackstone’s head of real estate in Europe, appeared to be hedging his bets when he said in Paris last month: “For stabilised assets, it’s a good time to be selling … but we’re still here to buy in Europe.” His views count. Blackstone, ranked the world’s biggest real estate fund manager, has $94bn of property assets under management and a purse filled with billions more.