world-cities 2013 march

8/9/2019 World-cities 2013 March

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NEWHORIZONS

The key destinations forglobal real estate wealth

I N S I G H T S| World Cities Review |

MARCH 20 1 3


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- 02 -SAVILLS.COM

New geographies of wealth creation have caused a worldwide change in demand for real estate. Newnationalities are now seeking to buy in Asian cities,

as well as the “old world”, meaning the last five yearshave seen a significant shift in real estate markets.

2008 was a turning point in the investmentbehaviour of the world’s ultra-wealthy citizens. esearch for safe stores of wealth took money out ofequities into gold, bonds and real estate, includingthe world’s most élite houses. It also marked a shift inthe creation of wealth. As indebted North Atlanticcountries commenced a long process of austerity,

there was little or no increase in the numbers of ultra wealthy individuals there. But, in the relativelyunaffected and fast-growing “new world” economies,

new billionaires were created with some velocity.Since 2008, falling currencies have made real

estate look even cheaper for a number of nations, socertain “old world” cities began to behave more liketheir “new world” counterparts. As a result, the pastfour years have seen a huge appetite for ultra-primeresidential property in the world’s premier cities.Inevitably, this increased activity by wealthy buyershas caused significant price rises in many locations.

NORTH

AMERICAS

22.2%450

CENTRAL& SOUTH

AMERICA

3.3%66

EUROPE &SCANDINAVIA

11.3%228

contents

W E L C O M E

S O U R C E : F O R B E S

T H E B R I E F I N G

O F F I C E S

B I L L I O N A I R E S

R E S I D E N T I A L

S P O T L I G H T

A T A G L A N C E

C O N T A C T S

02-03

04-05

10-11

07-09

12-13

15

14

06

PERCENTAGE OF WORLD

BILLIONAIRES

key

0.0%00

NUMBER OF ACTUAL

BILLIONAIRES

WORLD CITIES


3/16

INDIANSUB-CONTINENT

2.4%48

MIDDLE EAST& AFRICA

2.6%52

CHINA &HONG KONG

46.5%943

ASIA PACIFIC &AUSTRALASIA

6.5%

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It is possible that 2013 may be another turningpoint. Many of the super-wealthy have nearly fullyinvested in the key cities, meaning that activity could

abate in some quarters and shift to new locations. We have detected a stabilisation in many of the world city markets, sometimes assisted by deliberatecooling policies. ere has also been a shift in AsiaPacific buyer interest toward the USA, for example,

which currently looks good value. New investmentmay be less dominated by China, India andSingapore, as emerging nations such as Malaysia,Indonesia and the Philippines play an increasing role.

WATCH

OUR EXCLUSIVE

WORLD CITIES

VIDEO REPORT AT

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WORLDCITIES

CIS

5.3

%

108

WORLD CITIES


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MIDDLE

AG EDEX-PAT CEO

SENIOR

EX-PAT DIRECTOR

LOCALLY

EMPLOYEDDIRECTOR

LOCALLY EMPLOYED ADMIN STAFF

SAVILLS EXECUT IVE UNIT(SEU) CONSISTS OF . . .

3. NEW Y ORK

2. LONDON

1. HONG K ONG

£3 18,000

(US$5 13,0

00 )£37 1,000 (

US$598,00

0 )£590,000 (US

$95 1,000 )£602

,000 (US$

970,000 )£675

,000 (US$

1,088,000 )£782

,000 (US$

1,260,000 )£869

,000 (US$

1,40 1,000 )£949,00

0 (US$ 1,530,00

0 )£973,000

(US$ 1,568

,000 )£ 1,074,000

(US$ 1,73 1,000 )

4. PARIS5. T OK Y O6. SINGAPORE7. SY DNEY 8. MOSCO

W 9. SHANGHAI10. MUMBAI

R eal estate is just one of the manycosts associated with setting up,expanding or relocating global

businesses. While it is unlikely ever tobe the sole motivating or deciding factorin the choice of a city, it is increasinglysignificant for a number of industries, butin a way not seen before.

Staff have become the single mostimportant asset for many organisations inall parts of the world, particularly in theservice sector. Consequently, the quality ofthe environment in which employees workand live has become a key success factor forthose industries. In the intensely

As usual, Hong Kong ranks numberone in total annual real estate costs (seeleft), roughly three times the cost oflocating in Mumbai or Shanghai. e bigsurprise is the position of New York as thethird most expensive city by this measure.

While headline residential capital valueslook cheap by international standards, rents

have grown fast and the taxes and othercosts associated with occupancy are high.

A MEASURE OF SUCCESS

e total costs measure reveals that mostof the “new world” is relatively cheap, withSydney standing out as a particularly good

value “old world” city, well-placed to attractexpanding companies in the Pacific region.

is is perhaps why it has shown stronggrowth in total costs since 2008, backed bya strong demand, in turn buoyed by astrong local economy and advantageousregional positioning, as well as all thesafety, stability and transparency of anestablished market. We may well seeSydney becoming an increasingly globalcity as it proves attractive to new andexpanding businesses on the Pacific Rim.

e main obstacle to this is the city’srestrictions on foreign purchasers buyinghomes. Some choices of business locationhave as much to do with where the CEO

wants to live as economic considerations.Different types of company have

different requirements, so we have alsocompared the costs for both a financial andcreative SEU company to live and work ineach city (see above), with differing andsometimes surprising results.

VARIABLE GROWTH

Overall, the growth in total costs since2008 has been variable. Premises forcreative businesses in Mumbai and New

York are over 20% more expensive now,having grown lower bases on the back ofstrong economies, while Singapore and

Tokyo are up to 20% cheaper. Total real

COUNTING THE COSTSTHE TRUE COSTS OF GLOBAL COMMERCIA L AND RESIDENTIAL REAL

ESTATE ARE AN INCREASING CONSIDERATION FOR MANY I NDUSTRIES

competitive global market for top talent,the cost, quality and desirability of a citylifestyle is an important unit of currency.

MAKING A COMPARISON

We have looked at the relativecompetitiveness of our 10 world cities, notonly on the basis of the annual rental costsassociated with office and residentialaccommodation, but also the additionalcosts like service charges, local taxes andother items that might be associated withsuch tenancies. We have looked at this fortwo different types of employer, using our“Savills Executive Unit” as a unit ofcomparison in each case (see above).

TOTAL RE AL ESTATEOCCUPANCY COSTSAT DECEMBE R 2012

FOR ONE F INANCIAL &ONE CREAT IVE COMPANY

THE BRIEFING


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-10%-15% 5%0% 10% 15% 20%-20% -5% 0%

-10%-15% 5%0% 10% 15% 20%-20% -5% 0%

-14%

-18%

-19%

-11%

-6%

14%

14%

11%

16%

14%

0%

7%

21%

22%

4%

8%

1%

SYDNEY

NEW YORK

PARIS

TOKYO

MUMBAI

SHANGHAI

SINGAPORE

LONDON

MOSCOW

HONG KONG

TOTAL COST CHANGE S INCE 2008O FINANCIAL SECTOR O CREATIVE INDUSTRY

6%3%

-4%

estate costs in most countries have stayedroughly similar since the North Atlanticdebt crisis struck, although the costs offinancial company premises have cheapenedmore – suggesting demand has increasedfurther among new creative industries.

e relative cost freeze in rents andassociated costs is changed by currency

fluctuations (not shown), which haveserved to make some cities, such as Sydney,look more expensive to euro and sterlingdenominated businesses. Althoughcompetitive and static real-estate costsmight be expected in recession-hit “old world” cities, it is perhaps surprising in viewof the high levels of capital growth seen in

“new world” cities. Generally, we see this asindicative of the more elastic supply-sideresponse in these locations, which havesuppressed rental growth, despite an influxof investor equity. It also reflects the extentof the yield contraction in many “new world” cities, where rents have not keptpace with capital values.

“Some choices of b us ines s locat ion ha veas much to d o with whe re the CEO wa nts

to l ive as econo mic cons iderat ions”

YOL AN DE B AR N ES , S AV I L L S W OR L D R ES E AR CH

THE BRIEFING


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- 06 -SAVILLS.COM

There can be significant differencesbetween the headline rent oncommercial premises and the total

costs that tenants end up paying. In New York, for example, although the basic rentfor an executive unit operating in a creativeindustry is the fifth most expensive in the

world, on a £ per sq ft basis, this rises to the

second when whole space and associatedcosts like local taxes, letting costs andservice charges are considered. ese extracosts add 53% to the headline rent.

London is another city where headlinerents per sq ft are very high and additionalcosts can significantly add to real-estateoverheads. ese conspire to makeLondon’s whole space costs the secondmost expensive of the 10 cities for a smallfinancial company, such as a hedge fund,locating in the most prime district ofMayfair. However, London offers a much

wider range of rental levels than some ofour world cities and therefore is among thecheapest cities for a small creative companystart-up. Paris, on the other hand, looks verycheap for the financial unit, ranking thirdcheapest of the 10. However, it has a muchsmaller range of rent levels across differentgeographies meaning that it is the thirdmost expensive for the creative company.

As seems to be usual now in all ourglobal real estate rankings, Hong Kongranks as the number one most expensivecity for both types of company, by abig margin, for a whole office (as opposedto per sq ft). Hong Kong’s offices areparticularly expensive for small companiesin the prestigious central financial districtand total costs here are two and a halftimes the average for the other 10 cities –and nearly twice that of its nearest rivals.

is is despite Hong Kong having thelowest additional, hidden costs of any city.Of the 10 global cities, Sydney, Shanghaiand Mumbai have the lowest associated realestate costs, while London, New York,Moscow and Singapore have the highest.

THE PRICE OF SUCCESSEXTRA COSTS CAN ADD SIGNIFICANTLY

TO OFFICE ACCOMMODATION OVERHEADS

OFFICES

CO MMER CI A L R EA L ES TATE A N D A S S O C I A TED

CO S TS F O R D I F F ER EN T S EU TYP ES I N D EC 2 0 12O FINANCIAL COMPANY RENT £PSFT O FINANCIAL COMPANY COSTS £PSFT

O CREATIVE COMPANY RENT £PSFT O CREATIVE COMPANY COSTS £PSFT

HONG KONG 1 13%

20%4015

81113

2 47%

44%31

51

146

108

MOSCOW3 39%

35%31

20

1110

52

NEW YORK4 34%

53%35

26

182

77

PARIS8 19%

20%37

7

83

36

SHANGHAI6 9%

9%25

6

29

63

SINGAPORE7 22%

25%37

12

97

54

SYDNEY10 0%

0%27

0

04

40

TOKYO5 5%

5%48

5

25

100

LONDON

50 100 150

9 2%

5%15

1

18

26MUMBAI

TOTAL COST OF OFFICESPACE RANKING

RENTS AND COSTSBY £ PER SQ FT

% COSTS OVERHEADLINE RENT


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R ental growth is a good indicator ofthe underlying demand for homes.

e interaction of demand andsupply is readily apparent in rental growth

without the “noise” created by purchasers with motives other than occupation.

Overall, demand for accommodation inall our world cities is healthy. e rents

paid by the seven households in our SavillsExecutive Unit (SEU) rose by 5.1% onaverage across all cities. However, there waslarge variation around this average.

e biggest growth was in Mumbai where the opening of new transport linkshas changed the nature of a whole sector ofthe city, north at Andheri. e new metrolink will increase connectivity and decreasetravel times to the centre – from two hoursto 20 minutes – raising real estate prices inthat area significantly. e “priming” of theneighbourhood has already led to a rise inrental values of up to 50% in 2012 alone

for certain types of property and isexpected to increase further. is illustratesthe dynamic and evolving nature of manyglobal cities and the dramatic impact thatsignificant infrastructure improvementscan have, especially in emerging economies.

Investors looking for significant valueuplift will try to anticipate such changes in

any of our world cities and speculate ontheir impact. Indeed, it would seem thatinfrastructure improvements in Mumbaihad already been priced into capital values– tenants respond much later than investors.

For those looking for solid returns andrental growth, our world cities haveperformed well, especially in themainstream markets that serve theadministrative staff of our executive unit.

Any more recent, weaker rental growthseems to have been concentrated in theprime sectors of the cities, where the CEOand directors are more likely to live. In

Hong Kong, for example, the mainstreammarket grew strongly in 2012 while primerental markets fell. Generally, the top endproperties of Hong Kong, Paris, Singaporeand Tokyo have been weak, perhapsreflecting falls in the relative level ofcorporate activity in these cities.

Prospects for rental growth are strong

where the outlook for economic growth ispositive, as this naturally leads to peopleseeking employment and accommodationin the city in question.

Growth prospects are also furtherstrengthened where there is a limitedsupply of new or available housing. Rentalgrowth in “old world” cities is more likelyto be driven by such a lack of supply.Meanwhile, those “new world” cities withthe space and infrastructure to expand, likeShanghai, will see weaker growth thanthose that are more land-constrained, suchas Mumbai and Singapore.

STRONG PROSPECTSHEALTHY DEMAND IN ALL OUR WORLD CI TIES

EQUATES TO SOLID RENTAL RETU RNS

RESIDENTIAL

TOK YOS INGAPOREPARISHONG KONGSH ANGH A ISYD NEYNEW YORKLONDONMOSCOWMUMB AI

2 0 1 2 RE S I D E N T I AL RE N T AL G RO WT H FO R O UR WO RL D C I T I E S

ALL CITIES

C E O

D I R E C TO R S

ADMINSTAFF

TOTAL SAVILLSEXECUTIVE

U N I T

3.6%14.3%

-0.3%

12.9% 8.0% 3.8% 7.1%0.0%

-3.6% -9.2% -2.2%

7.0%41.7% 11.9% 6.3% 3.5% 5.3%

0.0%-8.3% -5.2%

4.5%8.6% 6.2% 2.7% 4.6% 2.9%

0.0%-0.1%

3.8% 2.0%

6.3% 12.6% 0.5%

5.1%18.9% 8.8% 4.6% 4.2% 4.0%

-2.0%

4.7% 3.0%

-0.1%0.0%


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PARISLONDONMOSCOW SYDNEY NEW YORK

1 2 3 4 5=

As global wealth has been pouringinto real assets, including worldreal estate, since 2008, so the

motives for real estate acquisition haveshifted. While investors used to beprimarily seeking safe haven assets in

which to store wealth, we now detect anincreasing interest by global investors in

income-producing assets. is shift means that the fundamentalsof rental growth and yield are becomingmore important to buyers whose searchis moving “down-market”, away fromprime and trophy properties to mainstreammarkets, from commercial to residentialand away from the city core to f ringe.

IN DEMAND

While rental demand and growth showthat the fundamentals of demand andsupply are reasonably strong in most ofthe cities studied, there are considerable

The fundamentalsof rental growth

and yi eld ar ebecoming more

importantto buyers

variations in yields. ese disparities arisedue to the quirks and differences betweencapital value and rental markets, as wellas investor sentiment. Understandingthese anomalies will assist buyers whoare looking to make different types ofinvestment play.

Variations in yield tend to occur becauseof differences between owner and tenant

behaviour. Owner-occupiers tend to value different property features to thoseconsidered desirable by tenants and, at thesame time, investors are more active insome markets than others. ere are also

ways in which investors favour somemarkets over others. For example, foreigninvestors are focusing on prime rather

than mainstream London, and Singaporeover Shanghai.

VARIABLE YIELDS

Across all our world cities, yields aremore variable now than they were seven

years ago. Back in 2005, most cities, inthe “old world” and “new world”, wereshowing an annual gross rental return ofaround 5.5%. ere is now a huge rangeof returns, from 2.4% to 6.4%.

Yields have moved dramatically in many“new world” cities because rental growthhas not kept pace with very high levels of

PAYING DIVIDENDSGLOBAL PROPERTY INVESTORS ARE TURNING THEIR

ATTENTION TO INC OME-GENERATING RESIDENT IAL ASSETS

5.2%5.6%6.4% 4.8%4.9%

DEC EM B ER 2 0 12 RES IDEN T IAL Y I ELDS (G RO SS)

RESIDENTIAL


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HONG KONG SHANGHAIMUMBAI

108 9

SINGAPORE

7

TOKYO

5=

capital growth, caused by the weight ofmoney bearing down on Chinese andIndian markets in particular.

HIGHER INCOME

While falling interest rates in the East and West have caused some yield contractionin the “old world”, this has not been nearly

so dramatic. e higher income returnsavailable can be seen as compensating forthe much lower rates of “old world” capitalgrowth. In North American cities, wherethe prospects for capital growth may beseen as increasing, the combination ofthese yields, ongoing rental growth andlow capital values are considered by manyoverseas investors to be a strong buy signal.

Any investors nervously regarding futurecapital growth in Asian markets may startto view low yields as a sell or hold signal,at least until – or unless – rental values startclosing the gap.

“We now detect an increas ing i nteres t by g lobal inves tors in income-producing asse t s”

P AU L T OS T E V IN , S AV I L L S WOR L D R E S E AR CH

2.8%3.6% 2.4%4.1%4.8%

A WORLD OF C HO IC E WORLD CITY YIELD SPREAD

O AL L O OLD WORLD O NEW WORLD

DE C 12

0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

I

N

D

E

X

:

G

R

O

S

S

Y

I

E

L

D

DE C 05

DE C 08

DEC09

DE C 10

DEC07

DE C 06

DE C 11

RESIDENTIAL


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Global billionaire activity in worldreal estate markets has been sointense over the past seven years

that it has led to a doubling of residentialproperty values in this sector.

Although overall, aggregated world values fell after 2007 and price movementsseem volatile, recovery has been significant

since 2009. As a result, billionaire marketshave exceeded the growth seen in themainstream markets of the same cities.

DRIVING GROWTH

e activity of billionaires in internationalreal estate markets reflects the creation ofglobal wealth and the economic successof particular regions and cities. is meansthat the cities in newly emerged economieshave significantly outperformed those inthe “old world” economies of the US,

Japan, Australia and Europe.Only London’s ultra-prime market

stands out among the “old world” citiesas having shown significant growthsince 2005, totalling 107%. New York’sbillionaire real estate stands only 47%higher and Tokyo ultra-prime residentialis only 8% more expensive (in localcurrency) than it was in 2005.

Rising commodity prices and thecreation of new, ultra-rich classes in Chinaand Asia have precipitated the highestgrowth in ultra-prime real estate values.Singapore and Mumbai stand out as havingseen the highest growth in ultra-prime

values since 2005 (at 232% and 176%respectively). Both grew from relatively lowbase values. e highest overall values are

seen in Hong Kong. e record deal there was £8,200 (US$13,100) per square foot fora house in Deep Water Bay Road in 2011.

BILLIONAIRE BOLTHOLES

Billionaire activity has been concentratedon high-end urban centres rather thanleisure properties in the surrounding

countryside or regional sunbelts.Consequently, the index for billionaireleisure homes has not yet quite recoveredto its former 2007 peak and only stands34% higher than it did in June 2005.

ULTRA-PRIME IS STABILISING

2012 saw significant curbs imposed onbillionaire buyers in some cities. is hasresulted in slowdowns rather than falls inmost of them. Singapore’s ultra-primegrowth slowed to about 5% in the year,

while Hong Kong’s stalled and London’salso slowed significantly, both in the secondhalf of 2012. Moscow prices slowedalongside commodity prices, which areclosely linked to the value of Russianultra-wealthy individuals.

In France threatened tax measuresseemed directly to have curbed activity.Our ultra-prime index in Paris is down,nearly -8% on the year, while billionaireRiviera properties ended down -10%.

Overall, the ultra-prime billionairemarkets are stable. Real estate, especiallyin “old world” countries, is seen as a safestore of wealth. e US, in particular, looksripe for growth.

Ultimately, the world’s richestinhabitants will continue to set up homesin the most cosmopolitan and wealthiestcities, which offer commercial advantagesand quality of life. Leisure resorts andcountry property purchases tend to lagbehind city values, but they have thepotential for recovery. Leisure properties inthe most fashionable billionaire boltholesand prosperous world regions are likely tosee the highest growth.

Bil l ionair e mar ket shave exceeded th e

growth seen inmains t ream marke t s

RICH PICKINGSTHE VALUE OF ULTRA-PRIME HOMES I N KEY A REAS

HAS DOUBLED THANKS TO BILLIONAIRE BUYERS

RECORD DEALSA RO UN D TH E W O RLD

THE HIGHEST PRICES

AC HI EVE D IN EA CH OF

THE 10 GLOBAL CITIES

(At Dec 2012 exchange rates)

£8,500PSFT

1

LONDONkensington palace

gardens, 2008

£8,200PSFT

H O N G K O N Gdeep water bay road, 2011

2

£8,100PSFTNEW YORK

15 central park west, 2011

3

(US$13,700)

(US$13,100)

(US$13,000)

BILLIONAIRES


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SAVILLS.COM

DE C 08

DEC09

DE C 10

DE C 12

0

50

100

150

200

250

I N

D

E

X

:

2

0

0

5

=

1

0

0

DE C 05

DEC07

DE C 06

DE C 11

300

DE C 08

DEC09

DE C 10

DE C 12

0

50

100

150

200

250

I N

D

E

X

:

2

0

0

5

=

1

0

0

DE C 05

DEC07

DE C 06

DE C 11

300

“Cities in newly emerged economies have s ignif icantlyoutperformed those in the ‘old world’ economies”

YO LA ND E BA RNE S , SAV I LL S WO RL D RE SE A RC H

A WORLD APARTBILLIONAIRE HOUSE PRICE GROWTH – “OLD WORLD” v “NEW WORLD”

O NEW WORLD CITY BILLIONAIRE HOMES

O OLD WORLD CITY BILLIONAIRE HOMES

O NEW WORLD BILLIONAIRE LEISURE HOMES

O OLD WORLD BILLIONAIRE LEISURE HOMES

HOME AND AWAYBILLIONAIRE CITY v LEISURE PROPERTY PRICE G ROWTH

O BILLIONAIRE WORLD LEISURE HOMES

O BILLIONAIRE WORLD CITY HOMES

O NON-BILLIONAIRE WORLD CITY HOMES

£4,700PSFT

TO K YOroppongi hills, 2007

4

£3,900PSFT

PARISquai anatole france, 2009

5

£3,500PSFT

S I N GA P O REthe marq on

paterson hill, 2011

6

£2,300PSFT

MO S CO Wcrystal house, 2011

7

£1,700

PSFT

S H A N GH A Itomson riviera, 2010

8=

£1,700PSFTS YDN EY

wolseley road,point piper, 2011

8=

£1,300PSFTMUMB A I

tahnee heights, 2012

10

(US$7,600)

(US$6,300)

(US$5,600)

(US$3,800)

(US$2,800)

(US$2,800)

(US$2,200)

BILLIONAIRES


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A Q UES T I O N O F V A LUE

O TOKYO RENTAL VALUE INDE X O TOKYO CAPITAL VALUE INDEX

DEC12

60DEC 05

DEC 06

65

70

75

80

85

90

95

100

105

DEC 07

DEC 08

DEC 09

DEC 10

DEC 11

DEC12

S O F T R ETUR NO TOKYO AVERAGE YIEL D FOR SEU

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

DEC 05

DEC 06

DEC 07

DEC 08

DEC 09

DEC 10

DEC 11

TOKYO JAPAN’S UNUSUAL RESIDENT IAL MARKETMEANS FALLING YIELDS ARE DECEPTIVE

Tokyo saw modest rental growth inthe run-up to 2008, followed bysteady falls ever since. Capital

values were much more volatile, boomingfurther than rents and falling more.

As a result of the capital market volatilityand decline in rents, there has been asignificant downward yield shift in theSEU properties – from 6.8% in 2005 to4.8% now. While this may seem bizarre ina weakening market, it realigns Tokyo with

world city norms and also makes sense inthe context of very low bond rates at home.

Tokyo is one of the least “global” of thecities in this study. Recently, the strengthof the yen has been a major barrier toun-hedged overseas buyers who have fearedlosing value in adverse exchange ratemovements. Yen-denominated assets alsolook expensive compared to other cities.

e current average value for the Savillsexecutive unit is 51% higher in sterlingterms than it would have been if sterling/

yen exchange rates had remained at theirDecember 2005 levels.

Another peculiarity of the Tokyo marketis the way that real estate is valued in Japan.

e bulk of a property’s value is in the landit stands on and, while this may also be truein other countries, it is often not recognisedin appraisal methods, which combine thebuildings and land in a single entity.

In Japan, the building itself is consideredseparately from the land, so the building

value depreciates. is depreciation occursover a relatively short period because thetradition is to rebuild every 30 years or so.

is is a logical way to proceed in anearthquake-prone city where the onlylasting variable in the real estate equationmay be land. But it makes it diffi cult tomake a comparison with Western markets.Rental growth can be more revealing ofunderlying demand, but even here theretends to be a deflationary effect due to acultural preference for new properties.

is means the natural tendency of Japanese house prices, as a whole, is todecline. A Japanese index, measured byconventional means, will appear to be fallingdue to this depreciation. is could misleadany investor willing to take a residentialdevelopment value at the end of 25-30

years, as in most commercial property.

CITY SPOTLIGHT


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CHANGE IN WORLD C I TY

RAN K IN G S S IN C E 2 005

1 0 C I T I E S A V E R A G E = 1 0 0

MUMBAI

RANK

10

4

2

7

8

1

5

6

3

9

44.6

64.0

67.7

72.7

INDEXINDEXRANK

20052012

SYD NEY

30.3

103.2

48.9

114.9

MOSCOW

NEW YORK

SH ANGH A I

PARIS

TOK YO

S INGAPORE

LONDON

HONG KONG

54.6

110.3

149.9

82.8

131.4

173.7

76.2

93.3

101.5

112.8

130.1

237.4

10

8

9

7

6

4

5

3

1

2

CITY SPOTLIGHT

NEW YORK THE BIG APPLE’S HEALTHY RESIDENTIAL

RETURNS ARE ATTRACTING INVESTORS

New York stands out among other

American cities because, although values there fell significantly after

2007, it did not see quite the same level ofextreme falls as some others. New York’srecovery has also been rapid. e last yearhas seen high levels of growth in theproperties that make up the Savills WorldCities Index. Overall growth was 12% andthe value of residential properties occupiedby the seven SEU households is now backat its 2007 level.

New York stands out among world citiesas looking particularly good value,especially from an income return point of

view. As residential prices have seen muchlower growth than other World Cities,New York has fallen in rank from one ofthe most expensive to a distinctly cheap“old world” urban centre. Current valuesare only 23% above their 2005 levels andthe average rental yield on propertiesoccupied by the seven households in theSavills Executive Unit is 6.4% gross.

At the same time, the relative weaknessof the dollar against many Asian currenciesnaturally encourages trans-continental

investment flows. erefore the stronginterest from Asia for real estate inNorth American cities is of little surprise.

ere are, however, some possibleimpediments to investment in New York.

ese fall into two main categories:associated costs and housing tenure types.

e entry, holding and exit costs associated with property are relatively high and theprevalence of the co-operative tenure forapartments means foreigners may find itmore diffi cult to buy. ey are relativelyrestricted to the 30% of stock that iscondominium tenure. Were it not for thesepeculiarities New York would be anextremely strong starting point for North

American recovery investment.On the face of it, New York looks a

good investment for those seeking goodmedium-term capital growth prospects andhealthy returns. For many Asian buyers,there is also the advantage of a weak dollar.

It is hardly surprising that the number ofoverseas buyers is increasing. What makesthe city a continuingly attractive “deal”is the steady rental growth since 2009,indicating healthy underlying demand.


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NEW YORKoffice rentalvalue growth:

residential rentalvalue growth:

residential capitalvalue growth:

12.2%

4.6%

9.0%

2

ALL IN THE DETA ILS A SNAPSHOT OF THE SEU IN WORLD CITY ANNUAL MARKETS IN 2012

O TOTAL COST RANK O OFFICE AND RESIDENTIAL RENTAL VALUE GROWTH

O RESIDENTIAL CAPITAL VALUE GROWTH

- 14 -

SAVILLS.COM

SHANGHAIoffice rentalvalue growth:



-0.5%

4.0%

4.3%

9

TOKYOoffice rental

value growth:



-0.7%

-2.0%

7.0%

5

LONDONoffice rental

value growth:



2.7%

4.7%

6.5%

3

MUMBAIoffice rentalvalue growth:



0.7%

18.9%

-9.7%

10

MOSCOWoffice rentalvalue growth:



9.0%

8.8%

13.9%

6

PARISoffice rentalvalue growth:



-3.4%

0.0%

5.0%

4

SYDNEYoffice rentalvalue growth:



4.2%

4.2%

2.8%

8 HONG KONGoffice rental

value growth:



15.2%

3.0%

-3.7%

1

SINGAPOREoffice rentalvalue growth:



3.5%

9.1%

-8.5%

7

AT A GLANCE


15/16

EXPERT COMMENTARY SAVILLS AGENTS ARE AT THE HEART OF

THE GLOBAL PROPERTY MARKET

` A high-growth citythat continues toattract investment,

especially frommainland China.a

`Tax policies havedealt a blow to prime

domestic demand. Values are weak andmay soften further.a

Èurope’s fastestgrowing city,

London appeals toinvestors as well as

safe-haven buyers.a

Ìn 2013, Shanghai will be boosted by

renewed wealthcreation and relaxedcooling measures.a

`Moscow hasa domestic market

with strong growthfuelled by

commodity prices.a

̀A strong andhigh-yielding city,despite raised taxes

and restrictionsfor foreigners.a

Èconomicdevelopment and

population growthplus limited supplyare driving values.a

`Sydney remainsgood value by ‘old

world’ standards andis attractive to Pacific-

Rim investors.a

Òne of North America’s most-

recovered cities, weexpect to see further

value growth.a

`Tokyo’s deepoccupier markets

offer investorsstable income

returns.a

HONG KONG

PARIS

LONDON

SHANGHAI

MOSCOW

SINGAPORE

MUMBAI

SYDNEY

NEW YORK

TOKYO

Alexander Shatalov Intermark Savills

+7 (495) 775 22 40a.shatalov@

intermarksavills.ru

Raymond LeeSavills Hong Kong

+852 2842 [email protected]

Jonathan HewlettSavills London

+44 (0) 20 7824 9018 [email protected]

Alan BellSavills Indian Associate

+91 9900 234 [email protected]

RESEARCH CONTACTS

Elizabeth StriblingStribling Associates

+1 212 452 [email protected]

Albert LauSavills Shanghai

+(8621) 6391 [email protected]

Insights is published on behalf of Savills PLC by Seven, seven.co.uk. All information correct at time of going to press. All rights reserved.

Articles may not be reproduced without written permission from Savills PLC. While every care is taken in compiling the content, neither the

publisher nor Savills PLC Ltd assumes responsibility for effects a rising from this publication. Property Misdescriptions Act: Savills recommends

applicants discuss their interest in a property with the negotiator who can answer your specific questions and advise if it is under offer.

is is important if you are contemplating travelling some distance. All descriptions, dimensions, references to condition and permissions for use

and occupation, and other details are given without responsibility, and any intending purchasers or tenants should not rely on them as statements of

fact, but must satisfy themselves by inspection of the property.Investment advice: e information and opinions contained in this magazine do not

constitute professional advice and should not be relied upon. Specific advice relating to your individual circumstances should be obtained.

Jean Claude CaputoSavills Riviera Estates+33 (0) 493 874 115

[email protected]

Christopher MarriottSavills Singapore+65 6415 3888

[email protected]

Shayne HarrisSavills Sydney

+61 (0) 2 8215 8879 [email protected]

Chris ManciniSavills Tokyo

+81 (0) 3 5562 [email protected]

Yolande Barnes+44 (0) 20 7409 8899

[email protected]

Simon Smith+852 2842 4573

[email protected]

Paul Tostevin+44 (0) 20 7016 3883

[email protected]

Eri Mitsostergiou+31 (0) 20 301 2087

[email protected]

I L L U S T R A T I O N S : A D A M P

O I N T E R . I M A G E S : C O R B I S

, G E T T Y I M A G E S , S H U T T E R S T O C K

- 15 -SAVILLS.COM

CONTACTS


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world-cities 2013 march

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