The dynamics of a global city

London is one of the premier world cities, and, as such, it attracts significant investment of all kinds, both cross-border and domestic.

2 July 2014, words by Yolande Barnes

 

Global economic forces are shaping real estate markets across the world 
and few major cities go untouched.

The continued rebalancing of the financial system, the global concentration of wealth and the ongoing activities of central banks are among the recent trends that have all played a significant role in the behaviour of real estate markets. The global inflation of asset prices generally, and residential property in key cities in particular, has played out in many locations and London has been a key participant.

The appeal of London’s residential property to international buyers is echoed in the buyer profile of other real estate sectors in the capital.

The office sector is London’s biggest standard real estate investment class – with in excess of $20 billion in investment in 2013, of which $11.7 billion, or 57%, was cross-border according to RCA data. Over half of investment in London’s hotels was cross-border, while 43% of retail investment came from overseas.

Table 2.1

London is not unique in attracting international capital. These trends are echoed in other major global cities. European and Australian cities benefit from the most international investment.

In the first six months of 2014 alone, cross-border capital accounted for more than 70% of all big ticket office deals in London, Tokyo and Sydney. Wealth generated in the ‘new world’ has flowed to safe haven, ‘old world’ markets.

The biggest office real estate deals of the past year were concentrated in a handful of cities (Graph 2.1). The majority of these deals occurred in North American cities, although in this case, the source of investment was overwhelmingly domestic.

Graph 2.1

Private wealth

The trends seen in big ticket commercial property investment are echoed by our analysis of private wealth. Just under half of all ultra high net worth real estate investment by value has been into the world’s top tier global urban centres.

The 45 ‘Alpha Cities’ as defined by the Globalisation and World Cities Research Network. Five of these alone, namely Hong Kong, London, Moscow, Singapore and New York, account for 40% of holdings by value.

Global real estate investment is overwhelmingly a world city phenomenon and the best addresses in the world are urban. London is one of the premier world cities which attracts real estate investment of all kinds, both cross-border and domestic.

Overseas investors

Other asset classes are also characterised by high levels of foreign ownership. A 2010 study by the Office of Fair Trading found that 38% of UK infrastructure investment (including utilities) are held by foreigners.

Overseas investors are growing in prominence and have been seen to bring new capital investment to the sector and increase competition, leading to efficiency improvements. These investors have interests around the world, of which the UK is only one of many markets in which they operate.

In the stock market, among UK listed companies, non-UK owners held more than half (53.2%) of all equities in 2012, £935.1 billion by value. This figure has grown rapidly, from 30.7% of the market in 1998, and 43.4% in 2010. The large increases partly reflect the growth in international mergers and acquisitions, and the ease with which overseas residents can invest 
in UK shares.

Table 2.2

 

 
 

Key Contacts

Yolande Barnes

Yolande Barnes

Director
World Research

Savills Margaret Street

+44 (0) 20 7409 8899

 

Paul Tostevin

Paul Tostevin

Associate Director
World Research

Savills Margaret Street

+44 (0) 20 7016 3883

 

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