0% found this document useful (0 votes)
73 views29 pages

Embargoed

e

Uploaded by

jiosja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
0% found this document useful (0 votes)
73 views29 pages

Embargoed

e

Uploaded by

jiosja
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
You are on page 1/ 29

Global living

London in an international context

23

Contents
Introduction

A global economic overview

6-7

World property at a glance

8-9

How does global residential real estate rank?

10-11

How does global retail real estate compare?

12-13

How does global commercial real estate compare?

14-15

A tale of three cities

16-17

The long term performance of residential property

18-19

The supply and demand imbalance

20-21

Overseas buyers in the London market

22-23

Overseas buyers in the global market

24-25

A comparison of property taxation

26-27

The taxation and regulary landscape for overseas buyers

28-29

Global influences on design

30-31

City snapshot

32-43

A comparison of the private rental sector

44-47

Global comparisons at a glance

48-49

London rides the global retail wave

50-51

The prestige and premiums of office towers

52-53

Sources and contacts

55

45

Introduction
The housing market in central London rebounded quickly in the
aftermath of the global financial crisis. In the following years it
outperformed the rest of London and the UK, with annual average
house price growth of around 10% over the past five years. As well
as local influences, this performance reflects a range of global
economic and geopolitical factors, with London benefitting from its
role as the worlds preeminent financial centre.
In our increasingly globalised society, world trends are becoming
inextricably interwoven with the local markets affecting sales
rates and prices. However, globalisation doesnt stop there; it also
affects the type of buyers and the type of product.
In this report we review the London residential property market
within its global context, and see how it competes with other world
class cities. We examine a range of issues that influence property
market performance. These include the broader economic
backdrop, overseas buyers, tax regimes, the prominence of the
private retail sector, and how our increasingly globalised way
of living has influenced residential design. We then complete
the circle with a brief look at commercial property as we seek to
understand London in its global context.

Jennet Siebrits
Head of Residential Research
CBRE

67

A global
economic
overview
Despite a choppy first half
of 2014, the forces acting on
the advanced economies are
positive and supportive of
value growth in the property
markets. Overall, with
interest rates expected to
stay low for the time being
there is a promising outlook
for the global economy.

The US recovery is on track with 4%


growth in the second quarter of 2014,
offsetting a weather related fall in GDP in
Q1. Furthermore, jobs are being generated
at rate of about 200,000 a month.
There was no growth across the
Eurozone as a whole in the second
quarter. But, this concealed the fact
that a number of economies are doing
well, including Spain, Portugal and the
Netherlands. The UK grew strongly at
0.8%. Germany was the weak link, due,
as in the US, to Q1 weather. If Germany
was excluded the overall Euro area would
have grown in quarter two.
If the pattern of the post global financial
crisis recovery is volatile we should
not be surprised, the headwinds have
been strong. First, the banks had to
be recapitalised and restructured. This
is complete in the US, but ongoing
in Europe. Second, consumers in
the advanced economies have had
to reduce their debt levels. Third,
governments that spent their way out
of the crisis had to pursue austerity
measures, thankfully now largely over.
With the advanced economies
restructured, apart from France and Italy,
we look set for a period of reasonable
growth. Low levels of inflation and plenty
of spare capacity, except in the UK,
means that interest rates do not have to
increase that quickly. Job creation and
interest rates are two of the key drivers of
house prices. On a purely cyclical basis
we expect this expansion to run until
2020 in Europe.
The Chinese slowdown is causing some
problems in the emerging markets.
GDP in these markets has been turbo
charged over the last few years driven
by the export of raw materials into China.
However, demand for these exports has
waned in line with the cooling of Chinas
building boom.
Elsewhere in Asia, housing markets are
doing well. Abenomics may not be a
total success, but it is positive for growth
and the Japanese housing market looks
very good value.

Geopolitics are a concern and can play


a role in weakening economic sentiment
and reducing the impetus to invest.
However, the key worry for investors in
the housing market should always be
rising interest rates, but high levels of
unemployment mean that interest rates
are unlikely to move upwards in any
meaningful way until 2016 or even later in
the Eurozone.
By that time the economies of the
OECD will have had almost ten years
of negative real interest rates. A recent
IMF study analysed the long term
decline in real interest rates in the
global economy. It showed that both
nominal and real interest rates have
fallen over the last 30 years as inflation
has declined. This does not really fit with
economic theory which suggests that
real interest rates should track the rate
of GDP growth in the long term; so be
about 2 to 2.5% in the US and UK.
It seems the reason for the long term
decline in real interest rates, is an
excess of savings over investment. As
production has shifted to high savings
economies such as China, global
savings have risen. At the same time, not
only has investment been depressed in
the advanced economies, but the price
of investment goods has fallen in relative
terms. Consequently there is a surplus
of saving over investment. This helps to
explain why real estate prices, particularly
in the worlds most dynamic and amenity
rich cities, such as London, Paris and
New York, have performed so well.
The surplus of savings over investment
is set to continue for some time. For
example, the flow of savings that will come
from China as it reforms its economy over
the next five years has been estimated
to be in the order of 1.3 trillion. This will
depress interest rates and support real
estate prices.

Global growth may lack pace, but this means the cyclical
upward pressure on interest rates will be muted and
the long term trend is firmly down. These are good
conditions for global housing markets, particularly in
the advanced economies.

89

World property at a glance


52

2,071

109

1,800

Munich

Amsterdam

London

New York

Beijing

828

26

2,000

218

30

331

325

541
79

Berlin
20

298

633

263

Tokyo

Dublin
33

393

160

76

357

590 815

Milan
36 389

Los Angeles
27

367

590

Bangkok

Paris

890

18
53

853

63

225

1,100

Hong Kong

Rome

131 2,565 1,950

Mumbai
28

301

590

Dubai
37
45

79

74

725

Sydney

405

53

Cape Town

Key

Kuala Lumpur
9

24

204
31

Prime residential prices psf

186

Ho Chi Minh City

Johannesburg

Prime retail rents psf


11
Prime office rents psf

331

15

334

Singapore
65

289

27
950

112

317

543

1,200

How does
global
residential
real estate
rank?

Hong Kong

1,950

New York

1,800

Sydney

1,200

Average prime residential new-build prices,


Paris per sq ft 1,100
1

London

2,000

Hong Kong

1,950

New York

1,800

Sydney

1,200

Singapore

950

Los Angeles

890

Tokyo

815

10 11

Hong Kong
Depending on respective market trends, Hong Kong and London regularly oscillate
between first and second place in the residential rankings. However, following the
introduction of sales taxes in Hong Kong, transactions fell to a 17 year low last year.
As a result, prime property prices have fallen by between 5 and 10% over the year.
However, there are signs that the market could be picking up. In particular, there have
been price rises in the mainstream markets. This reflects strong pent-up demand
buoyed by speculation of further easing from the government. Improved sentiment
related to recent capital market activity has also boosted the market.

Mumbai
725
London prime residential
prices increased by around
5
10
Milan and Rome 590
Paris
1,100
16% last year and now
stand at around 2,000 per
6
950
Singapore
sq ft. London is just ahead
of Hong Kong, which is
7
Top three
890
Los Angeles
in second place following
a tumultuous year in the
London
8
Chinese province. New York
815
Tokyo
Demand for prime property in London rebounded quickly after the 2007 financial crisis.
is around 10% cheaper, but
As a result,
price growth has significantly outperformed the wider market, with average
9
annual growth of around 9% for the past five years. While demand was initially buoyed
still head and shoulders
725
Mumbai
by overseas buyers, we have since seen a resurgence in domestic buyers who now
above fourth place Sydney.
make up around 52% of the market. There remains a fundamental lack of new housing
10

supply in London and this is putting continued pressure on prices. Despite talk of a
590 in the market, we expect activity to remain
Milan and
Rome uncertainty
possible Mansion
Tax causing
strong with total house price growth of around 30% over the next five years.

New York
In the wider market, house price growth in New York remains relatively muted, at
around 2.5% last year. However, the prime market is supported by overseas buyers
and domestic high net worths, who have given this segment of the market a boost.
Average prime prices are currently 1,800 in New York, which keeps it firmly in the top
three, just below Hong Kong, and well above Sydney in fourth place.

How does
global retail
real estate
compare?

New York

2,071

Paris

853

London

828

12 13

Prime retail rent global ranking, per sq


ft
Tokyo
1

Hong Kong

2,565

New York

2,071

Paris

Hong Kong has consistently


4
been the most expensive
London
global retail location. In the
5
latest quarter (Q2 2014) rents
Tokyo
have remained broadly stable
6
at 2,565 per sq ft. This is 25%
Zurich
higher than New York in the
7
number two spot and a third
Top three
Sydney
higher than Paris, which has
Hong Kong
rents of 853 per sq ft.
8

Melbourne

853
828
590

10

590

New York

Zurich

570

There is a very limited amount of space in Manhattans prime corridor of Fifth Avenue
between 49th and 59th streets. A couple of recent deals by Ralph Lauren and Valentino
further constrained supply. As a result landlords continued to raise rents on the few
existing spaces that are available.

Sydney

543

Melbourne

456

Moscow

418

Beijing

393

While outlets on Fifth Avenue remain the most sought after, there are other very vibrant
retail corridors in Manhattan. For instance, the Times Square retail corridor also has
very high rents, and would independently rank ahead of Paris on the global top 10
most expensive markets list.

570
543
456

In Hong Kong, domestic retailers continued to expand in the prime streets of Tsim Sha
Tsui, Mong Kok and Causeway Bay. In addition, the competition among international
9
brands
for prime locations remained strong. However, retailers are increasingly
418
cautious Moscow
about rental costs and the
slowing pace of retail sales growth. Retailers are
increasingly preferring to expand in shopping malls rather than high streets due to
lower10rent, better trade mix and guaranteed footfall. While sentiment is expected to
Beijing
stay largely
positive over the next393
12 months, occupiers may become more selective
on locations. Rental growth in the region of 5% is expected in tier-one streets on the
back of solid demand from retailers and limited supply.

Paris
The Paris market remains heavily polarized. Despite the significant cost to entry, high
streets remained the top targets for international retailers. Demand has been strong for
the limited supply of locations on prime streets, pushing up rents over the course of 2013.
Rue des Francs Bourgeois and Rue Saint-Honor both witnessed increasing interest from
retailers, as there is a very limited supply of available space on the Champs lyses.

How does
global
commercial
real estate
compare?
Prime office rents in
Hong Kong central have
increased by 2.3% over the
past year, ensuring Hong
Kong has both the highest
office and the highest retail
rents. In London, prime
office rents in the West End
have increased by 10.5%.
Beijing comes in third with
office rents of 80 per sq ft.

London Central

14 15

Beijing

79

Singapore

65

Prime office rent global ranking, per5 sq ft


Paris
1

Hong Kong

131

London Central

109

Beijing

79

Singapore

65

Paris

53

Sydney

53

10

Top 7three
New York

109

53

Sydney

53

New York

52

Milan

36

Dublin

33

Kuala Lumpur

31

London
At 109 per sq ft, prime office rents in London rank the second highest globally. However,
on an occupancy cost basis, London surpasses Hong Kong at 164 per sq ft. This is a
13.5% increase over the year. This partly reflects development restrictions in the West End,
which keep vacancy rates comparatively very low. In addition, the improvement in the UK
economy has triggered a strong recovery in the demand for space. This demand, along
with the shortage of available space, has been putting upward pressure on prime rents
throughout 2013 and into 2014. We expect further growth in rents in 2014.

52

Hong Kong
8

36 of 131 per sq ft, when other costs such


Milan the highest prime rents
Despite having
as services charges and taxes are factored in Hong Kong (Central) only ranks the
second
9 most expensive office location, after London. Hong Kong (West Kowloon),
is cheaper
and is home to big investment
33 banks. It has emerged as an attractive
Dublin
location for cost-conscious occupiers looking for quality space near the central
business
district (CBD). Occupancy costs in both markets are expected to start
10
increasing
in theLumpur
coming months. 31
Kuala

Beijing
Office rents in Beijing have remained broadly unchanged over the year at 79 per sq ft,
and Beijings Finance Street ranks as the third highest prime rents (and at an occupancy
cost basis). In Beijings Finance Street there has been very little new prime office supply
since 2009. Meanwhile, market demand from domestic companies is growing rapidly,
especially from financial institutions. Little new supply is expected in 2014 and rents in
this market should hold firm, and perhaps rise, over the balance of 2014.

16 17

A tale of three cities


Population born
overseas
37%

Owner occupied
49.5%

House building annual


average last decade
19,973

Museums
240

Tallest building
The Shard 1,004 ft

Most popular
girls name
Amelia

International airports
Heathrow / Gatwick /
City Airport / Stansted

Hotel rooms
110,000

Average cost of
a dinner out
50

Underground
stations
270

Passport

London
$
Current
population
8,173,941

Average prime new-build


house prices
2,000 psf

Population born
overseas
35.3%

House price growth,


last year
17%

Owner occupied
38.8%

Michelin starred
restaurants
64

House building annual


average last decade
27,518

Share of millionaires
3.4%

Museums
83

Number of
commuters
3.2 million

Tallest building
One World Trade Center,
1,776 ft

Most popular
boys name
Oliver

Most popular
girls name
Sophia

International tourists
16.8 million

International airports
JFK / La Guardia &
Newark

Milk 1L
0.95

Hotel rooms
106,000

Cappuccino
2.43

Average cost of a
dinner out
44

Underground
stations
468

Passport

New York
$
Current
population
11,911,800

Average prime new-build


house prices
1,800 psf

Population born
overseas
6.4%

House price growth,


last year
2.4%

Owner occupied
66.4%

Michelin starred
restaurants
67

House building annual


average last decade
12,760

Share of millionaires
4.6%

Museums
55

Number of
commuters
5.2 million

Tallest building
International Commerce
Centre 1,588 ft

Most popular
boys name
Noah

Most popular
girls name
Anya

International tourists
10.9 million

International airports
Chek Lap Kok

Milk 1L
0.83

Hotel rooms
68,753

Cappuccino
2.33

Average cost of a
dinner out
25

Passport

Hong Kong
$
Current
population
7,219,700

Average prime new-build


house prices
1,950 psf

House price growth,


last year
17.5%

Michelin starred
restaurants
73

Share of millionaires
2.6%

Number of
commuters
2.8 million

Most popular
boys name
Liu

International tourists
13.6 million

Milk 1L
1.62

Cappuccino
2.42

Underground
stations
152

18 19

United Kingdom

231.9%

Australia

221.4%

Ireland

185.5%

Belgium

174.4%

France

149%

Norway

144.6%

Canada

133.9%

Netherlands

105.6%

Finland

Spain

82%

70.4%

Denmark

58.2%

United States

53.2%

Switzerland

37.6%

South Africa

19.2%

South Korea

11.3%

Italy

3.8%

-7.8%

Germany

400

300

200

London house price

UK house price

US S&P 500

FTSE 100

UK 10 year yield

US 10 year yield

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

100

2001

We expect both the London and UK


residential property market to continue to
outperform global markets, particularly on
a long-term basis. Our forecast suggests
London and UK house prices will increase
by around 30% over the five year horizon
from 2015.

500

2000

If, in 1994, 100,000 was invested in


London housing it would now be worth
577,000. The next best performing asset
was the US S&P index; 100,000 invested
in 1994 would now be worth 440,000.
London property outperformed the FTSE
all share and FTSE 100 by more than
double.

600

1999

The UK and US economies, and


therefore property markets, were
boosted significantly from the shift from
manufacturing to the service sector and
in particular the freeing up of the financial
sector, which started in the late eighties.
This particularly benefited London and
New York. Both cities had suffered
decades of decline in the manufacturing
sector, but gained a new lease of life
from the era of hyper-finance, that lasted
from 1995 to 2007. In addition, London
fared much better than New York in the
post-financial crash era.

UK house price growth


forecast 2015-2019

Long term trends in asset prices

1998

We have compared real long term house


price growth across a range of countries.
Our analysis shows that the capital value
of residential property in the UK and
Australia has more than tripled over the
last thirty years. This averages out at
around 3.6% on an annual basis (after
inflation). Growth in Ireland and Belgium
has also outperformed global trends.

30%

1997

UK house price growth


over last 30 years

We have tracked the performance across


a range of global assets over the last
twenty years and compared it with the
uplift in UK residential property prices.
UK wide prices are exceeded only by
US equity prices. However, being the
capital city, London outperformed the UK
and its residential market significantly
outperforms all the other assets.

1996

232%

Although many people buy a house


simply to live in, it is also an asset class
in its own right. The case for investing in
residential property is compelling when
comparing trends across a range of
other assets.

Japan

Residential property price volatility may


provide a quick win for investors, if they
correctly call the market and time their
entry and exit accordingly. However, a
more reliable and potentially rewarding
option is to adopt a long term strategy.

Long term real house price growth over 30 years

-14.5%

However, in an increasingly globalised


marketplace, both in terms of real estate
and alternative asset classes, there are a
number of other factors that intervene to
affect market performance. These include
exchange rates, the relative performance
of alternative locations and asset classes,
as well as governmental intervention,
particularly in relation to interest rates.

The shift of the underlying economic


platform helped boost Londons internal
wealth, as well as transformed it into
a magnet for global capital. The UK
gained the highest number of new
millionaires in the decade up to 2013.
At 114,100 this was more than double
the new US millionaires.

1995

House price growth in many


countries exceeds growth
across a range of global asset
classes. UK growth has been
particularly strong, with
real house prices tripling
over the last thirty years,
outperforming all of its
international competitors.

Demand for UK property is driven


primarily by domestic owner occupiers
and so reflects the UKs underlying
economic performance. Property price
trends therefore tend to mirror the ups
and downs of the economic cycle.

1994

The long term


performance
of residential
property

FTSE all-share index

20 21

The supply
and demand
imbalance
A surge in urban living,
against an increasingly
globalised context, has led
to heightened demand for
property in key cities across
the world. While in many
cities the level of residential
construction fulfils the
increase in demand, in some
cases, the level of new supply
is inadequate. This has
lead to upward pressure on
prices. Rising prices are in
turn intensifying demand,
as investors recognise
the acute investment
opportunity.

The UK suffers from an extreme shortage


of housing. Historically, the industry
has delivered around 125,000 new
homes per year, yet we have needed
closer to 200,000. This situation has
recently worsened, as the financial
crisis dampened construction levels.
Completions are now nearer 100,000 per
year. Against a backdrop of increasing
demand, this continues to put pressure
on pricing, with long-term real house
price growth at 2.4% per annum.
The supply and demand imbalance is
much more acute in London. Londons
population has increased by 14% over
the last decade, double the rate of
change across the rest of the country.
This equates to an additional 1 million
people living in the city. There are now
nearly 8.2 million living in London.
The most rapid growth has been in the
East London boroughs, which have also
experienced the most development;
Tower Hamlets, Hackney and Newham
are amongst the fastest growing
boroughs in the entire country.

1m
Increase in Londons population
over last decade
Population growth has been driven
mostly by natural change, with more
people of child-bearing age staying in
the city. In contrast to historical trends,
a much smaller proportion has been
moving out of London to have a family. In
addition, there has been a considerable
net inflow from twenty somethings, given
the much greater employment prospects
in the capital compared with the rest of
the country.
The government has forecast population
growth to continue at this pace over the
next ten years, taking the total number of
people living in the capital to 9.3 million.
Furthermore, household formation rates
continue to outpace population growth,
reflecting the increasing prevalence of
smaller households, which is putting
additional pressure on housing stock.

We are simply not building enough


housing to satisfy demand. While the
population of London has increased
by 1 million over the last decade, we
have only built 200,000 new homes
over the same period. This compounds
the already pronounced backlog
that existed previously. The Mayor of
Londons targets indicate we should
be building at least 40,000 per year to
satisfy current demand.
There are simply not enough homes for
Londoners as it is, even before we take
into consideration the appetite for London
residential real estate from overseas
investors. As a result, absorption rates
of new-build stock are at an all-time
high, with 63% of units that are still
under construction having sold off-plan.
This demand is also highlighted by the
ongoing house price inflation.

200,000
New homes built in London
over last decade
This supply and demand imbalance is
at the heart of the housing debate in the
UK and is something that all political
parties recognise as a priority. Although
house building targets exist and various
governments attempt to stimulate supply,
the process of housing delivery remains
cumbersome, particularly given the
expensive and time-consuming planning
system. Finally, while the government has
historically helped contribute towards
the provision of low cost housing for
those who are on low incomes or are
unemployed, the private sector is now
wholly depended upon to do this.

Parallel problems across


major global cities
General trends in urban migration,
and the subsequent massive upswing
in population, are not trends that are
exclusive to the UK and to London.
Rather, we are seeing this trend played
out across all major global cities and, in
some cases, it is even more pronounced.
Dubai, for example, has had the largest
percentage increase in population
over the last ten years, of 125%, which
equates to 1.26 million more residents.
Although Beijing grew by a much more
modest 18%, this actually means an
additional 3.3 million residents. Elsewhere
in Asia, Kuala Lumpur added 25% or
over 300,000 to its population. In major
South African cities, the populations of
Johannesburg and Cape Town have
grown by an additional 1.2 million and
850,000 people respectively.

While Tokyo and Beijing managed to


build an adequate level of housing, often
construction rates fail to match these
booms in population growth. In particular,
housing delivery rates are woefully low in
Hong Kong and Paris, with 1 new home
built per four new residents. In some cities
construction fails to provide for even a
low increase in population; for example,
Berlins population grew by just 3%, but
its low level of construction meant that for
every house built population increased
by three and a half persons. However, the
supply and demand imbalance is by far
the worst in London with just one home
built for every five new residents.

Ratio of housebuilding to
population increase

Population increase in the last decade

London
Paris

0.2
0.25

New York

0.5%

Hamburg

4%

Hong Kong

0.28

Amsterdam

8%

Sydney

0.29

Berlin

3%

Berlin
Kuala Lumpur
Munich
Hamburg
New York

Paris

0.3
0.36
0.37
0.47
0.53

Dublin

0.66

Beijing

0.7

Tokyo

1.6
0.5

1.0

5%

Munich

12%

Dublin

13%

Milan

7%

Kuala Lumpur

25%

Cape Town

25%

Rome

11%

Hong Kong

7%

Sydney
Ile-De-France
Tokyo
London

15%
6%
7%
14%

Johannesburg

25%

Dubai

125%
18%

Beijing
1m

2m

3m

22 23

Overseas
buyers in
the London
market
Overseas buyers have
always played a significant
role in the London real
estate market. Not only is
there an immense depth
of demand for residential
property in London, there is
also considerable breadth;
our recent schemes have
attracted buyers from
over 25 different nations.
This partly reflects the
cosmopolitan nature
of London itself, but
increasingly, it highlights
the compelling investment
case of its real estate.

Although the London residential market


primarily draws demand from its own
rapidly growing population, much has
been made of the role of overseas buyers
in recent years. Their prominence on
new-build schemes is regularly flagged
up in local media as a source of concern,
particularly in light of increasing values
and affordability constraints. However, the
issue is often overplayed.

37%
Of Londoners born overseas
London must be viewed within its global
context. London is a truly international city,
attracting people from all over the world
to its unbeatable business, cultural and
educational environment. As a result 37%
of London residents were born overseas.
It is inevitable that the cosmopolitan nature
of Londons population is replicated in
its housing market, with a huge range of
nationalities owning property in London.
However, it is misleading to classify
non-British buyers as overseas buyers if
they live and work in London, and have
done for some years.

15%
Overseas buyers

We consider true overseas buyers to


be those who normally reside outside of
the UK, and these buyers actually make
up a much smaller proportion of overall
sales in London than the headlines
would suggest. Overseas buyers are
most prevalent in Prime Central London,
typically drawn towards high-end newbuild stock in very central locations. This
is a thin and competitive market that
aligns more closely with the global luxury
goods market, than it does the wider UK
housing market. Non-British buyers make
up around 48% of our buyers in Prime
Central London. However, this share falls
dramatically going out from the centre;
in outer London, overseas buyers make
up just 7% of all sales. Across London as
a whole, overseas buyers account for just
15% of all sales.

A criticism of overseas buyers is that


the homes are left empty. However, the
majority of overseas buyers 58% rent
the property out, putting the stock back
into circulation. A further 27% buy to
live in it, and the remaining 15% buy as a
second home.

Where do overseas buyers originate?

Overseas buyers have been imtportant


in supporting Londons development
market during the recession. Overseas
investors have been attracted into London
by the favourable exchange rate and have
plugged a gap left by domestic buyers
unable to get a mortgage. These buyers
tend to favour new-build stock and are
comfortable buying off-plan. As a result,
they have played a hugely important role
in the early phases of large schemes,
essentially de-risking them and enabling
construction to take place.

Asian buyers are active investors across


a range of global cities. However, Thai
buyers have tended to invest in their own
market rather than overseas. London is the
exception and is one of the few overseas
markets they will buy in. This is because
it is popular to send children to London
to study; buyers tend to purchase a
property to accommodate their children
while studying and then resell or rent the
unit out after they graduate. The most
popular locations for Thai buyers are
Kensington, Knightsbridge and Hyde
Park. But anywhere central near a tube
station will be considered.

According to a report by London First,


overseas buyers create additional
economic benefits through the
construction of these homes. Every
100 homes developed in central
London contributes about 28 million
to the economy and creates 550 jobs.
In addition, high net worths tend to
contribute a lot more to the wider
economy. It has been estimated that
owners of homes worth more than
15 million spend between 4 and 5
million a year in the UK, while those with
homes worth more than 5 million spend
between 2 and 3 million a year.

Over the last five years, the main


appetite has come from South East
Asia, with new-build schemes from
London regularly hitting the Hong Kong
Singapore Kuala Lumpur exhibition trail.

Russian buyers, who have traditionally


honed in on the most expensive and
opulent end of the markets in nearly all key
destinations, have quietened somewhat
in the wake of recent geopolitical issues.
Many are now looking at marginally
more modest assets, at least by previous
standards.
In contrast, the political and economic
unrest in much of the Middle East
continues to encourage wealth out of the
area, pumping a steady flow of capital
towards London. The flight to safety
remains the number one priority.
Buyers from mainland China are becoming
increasingly active. They have already
surpassed the Russians as the largest
overseas buyer group in Sydney and
New York, and look poised to make a
real impact on the London market. This
is driven both by the sheer volume of
wealthy people coming out of the country,
their global aspirations, and the fear that
their domestic residential market is now
at saturation point in key cities.

Why London?
Cultural offering
Currency play
Education
Financial centre

Buyer nationalities, Prime Central London, 2014

Low risk profile


Market performance
Prestige
Safe haven
Supply & demand imbalance
Time zone

1%

2%

Oceania Americas

3%

Africa

5%

Middle
East

10%
Russia

11%
Asia

14%

Europe

54%

United Kingdom

24 25

Overseas
buyers in the
global market
Overseas buyers are not
exclusively a London
phenomenon. The global
elite have an interest in a
wide range of locations and
types of assets. In addition,
more modest Asian
investors are attracted to
emerging locations within
global cities that provide
good investment potential.
This is globalisation and
integration of the financial
markets at work.

Overseas buyers are not just targeting


London; a similar story is being played
out in other cities across the world. Other
locations favoured by global high net
worths are New York, Paris, Hong Kong,
Sydney and Singapore; all international in
their demographic make up.
In addition, resort destinations remain
popular where there is a sense of history
and exclusivity. The French Riviera is
one of the top favourites, as is Aspen,
Marbella, Maui, Pebble Beach, and the
Turks and Caicos Islands. However,
price growth in the urban centres
still outperforms that in the resorts;
according to Christies, average value
growth last year in the resort markets
was around 18%, compared with 31% in
urban markets.

80%
Of Chinese HNWs would like to send
their children to study overseas
For second home buyers, the Cote
DAzur, London and Miami, remain
popular and account for 90%, 48% and
45% of prime buyers respectively.
One of the increasingly significant buyer
groups is the Chinese. These buyers
typically favour urban locations, with well
known universities, a strong economic
backdrop and world-class lifestyle such
as New York, San Francisco, Vancouver
and Sydney. Motivations include quality
of life and childrens education.

There is a growing share of middle


class investors, looking for investment
opportunities. These are the equivalent
of the UKs buy to let buyers. Buyers
from China and South East Asia have
been active across the whole spectrum,
depending on the purpose of the
investment.

Established and mature high net


worths, typically from the Middle East
and Russia, are generally interested in
buying both a trophy asset, and finding a
safe place for their capital. These buyers
are the super prime elite and tend to
focus on a limited geography. They
feel more comfortable in the traditional
golden postcodes in robust, mature
markets, so in London, close to Harrods,
or in Cannes with a sea view. Both newbuild and historic properties are popular
to this group, so long as they are one
of a kind, trophy assets. These super
prime buyers can be attracted to both
urban and resort markets, but focus on
key markets only; i.e. London, New York,
Paris, Cote Dazur, Aspen, Marbella etc.
Buyers from India have also played a
role in the super prime market.

Share of population born overseas, 2014


Singapore

28%

New York

35%

Los Angeles

35%

London
37%
In tandem with overseas investors
1
looking to buy in London, British buyers
Sydney
40%
United States
are also active overseas. Popular ex-pat
7,135
destinations are the obvious targets,
Dubai
90%
such as Hong Kong and Dubai, as well
as the numerous oil industry pockets
2
1
all over the world. Indeed, the Emirates
China
United
States
real estate markets has one of the most
2,378
7,135
diverse buyer profiles, with 133 separate
nationalities investing in the sector in
1.
H1 2014, spending close to AED 37.5
3
2
billion (6.31 billlion) altogether. The
1
Japan
China
British formed a considerable part of United States
1,240
2,378
this spend, at around AED 5.811 (0.977,135
Net gain in millionaires
over
the
last
decade
1.
billion) recorded, though this is likely to
be much higher.
4
3
2
Hong Kong 22,200
1

Retirees are the new downsizers looking


for a life-style change. This group are
essentially empty nesters who are looking
to trade grand estates for turnkey, urban
condos with instant luxury amenities.
Both urban and resort lifestyles appeal,
but the traditional downsizer approach
of scaling down has been replaced
by a desire for a lifestyle shift, without
necessarily making a huge sacrifice on
the size of the property. These buyers
have been prominent in Canada for
some time, with luxury condos in Toronto
and Vancouver becoming increasingly
popular from this new segment. They are
becoming increasingly active in other key
urban areas, including London.

United States
Growth areas

China
2,378 Sydney

7,135

1.

Younger, but still relatively wealthy buyers


are much more open to new, emerging
areas. They tend to lead the lower
end / entry-level of the luxury market.
Some have made money through tech
companies, and therefore typically buy in
San Francisco, or Manhattans West Side,
while others want to allocate trust funds
to property. Most favour urban luxury
properties, over the resort. In London this
might be Southbank, Nine Elms, Canary
Wharf and City-fringe, as opposed to
Mayfair and Knightsbridge.

1.
In terms of new markets, there is
New York
potential for a considerable surge in
2
values in
parts of the world that are 3
Japan Singapore
undergoingChina
substantial infrastructure
1,240
2,378
improvements. Rio is an obvious
London
1. natural
example; already rich in
resources, with a growing high net worth
3
4
population,Japan
its massive infrastructure
United Kingdom
improvements
related to the World Cup513
1,240
and Olympics will only act as a further
catalyst to improve the offer in the city.

4
United Kingdom
513

Number of millionaire

5
1

Switzerland
United States
435
7,135
households,
000s,

United Kingdom
513

Japan
1,240
22,200

42,000
United Kingdom
45,00
513

5
1

6
2

2014

Switzerland
United
States
435
7,135

5
1

6
2

7
3

Germany
China
388
2,378

2
China
2,378

3
Japan
1,240

4
United Kingdom
513

5
1

6
2

Switzerland
435
United States
7,135
114,100

7
3

Germany
China
388
2,378

United States
7,135

Switzerland
United
States
435
7,135

Germany
China
388
2,378

Canada
Japan
384
1,240

1.

Canada
Japan
384
1,240

8
4

Taiwan
United
Kingdom
329
513

1.

5
1

Switzerland
United States
435
7,135

6
2

7
3
Germany
China
388
2,378

Canada
Japan
384
1,240

8
4

Taiwan
United
Kingdom
329
513

9
5

Italy
Switzerland
281
435

1.

7
3

6
2
Germany
China
388
2,378

Canada
Japan
384
1,240

8
4

Taiwan
United
Kingdom
329
513

9
5

Italy
Switzerland
281
435

10
6 France

Germany
274
388

1.

7
3

Canada
Japan
384
1,240

8
4

Taiwan Kingdom
United
329
513

9
5

Italy
Switzerland
281
435

10
6 France

7
Canada
384

274
Germany
388

1.

4
8

5
9

Taiwan
United Kingdom
329
513

Switzerland
Italy

5
9

10
6

Italy
Switzerland
281
435

France
Germany

10
6

France
Germany
274
388

7
Canada

7
Canada
384

Taiwan

Taiwan
329

26 27

A comparison
of property
taxation
In comparison with many
other countries, the UK
property tax regime is
relatively modest. However,
the inflow of overseas
buyers into Prime Central
London, and the subsequent
surge in values, has led
to substantial political
pressure to change this.
Additional taxes on
overseas buyers have been
introduced, namely a
higher Stamp Duty and a
Capital Gains Tax, while a
further Mansion Tax is also
being mooted.

Property taxes applicable

Just as the political landscape varies


from country to country, so does the
underlying tax regime. Some countries
have a favourable property tax. For
example, stamp duty in Ireland is
relatively low at 1% for properties under
1m. It is lower still for new homes in
France, and in the Netherlands it is 2%.
In contrast Stamp Duty is 4% in Dubai
and in Singapore overseas buyers pay an
additional 15% tax.

Stamp Duty

Transfer Tax

CGT

Special Stamp Duty

Annual Tax

London
Hong Kong
New York
Singapore
Kuala Lumpur

With some property markets in danger


of overheating, local governments
have increasingly turned to the tax and
regulatory framework to take some heat
out of their markets. To date, these have
been most marked in Asia and France.
In Hong Kong, for example, higher
stamp duty and resale taxes were
introduced between 2011 and 2013,
which led many overseas buyers
(particularly Chinese) to look elsewhere.
This caused some stagnation in the
market, with sales levels falling by 15%.
However, the top end of the market
didnt suffer, with investors considering
that tax changes on this scale of
investment are still comparatively small.
Although not designed to directly impact
the property market, the raft of wealth
taxes introduced by Francois Hollande
ultimately made it harder for domestic
buyers in France. However, overseas
buyers remained relatively unaffected.
As a result, international demand in key
markets like Paris and the Cote DAzur
has not waned, whereas demand from
French buyers in London has spiked. This
illustrates how the change in a local tax
can have a global impact. The temporary
reprieve from tax gains that was offered in
France in mid-2013 was hugely effective
in stirring activity again.
New capital gains tax in the US has only
had minimal impact thus far, and hasnt
slowed internal or external demand for
luxury property in LA, Miami, New York
and San Francisco. There are some local
nuances across the states; for example,
in Florida, there is no income tax, which
makes it perpetually attractive to wealthy
investors. The Miami market therefore
experienced huge falls in the wake of
the global financial crisis, but also one of
the strongest rebounds, highlighting the
underlying attractions of the city, as well
as the value for money it offers compared
with many other luxury markets.

Dubai
Dublin

Taxation was also used to stabilise the


overheating Singapore market. Altogether
the government introduced eight sets
of measures between September 2009
and June 2013. The first four rounds of
measures were targeted at speculative
activities in the residential market,
involving a sellers stamp duty and
mortgage restrictions. Although these
measures resulted in a fall in sub-sales,
an Additional Buyers Stamp Duty (ABSD)
was introduced in December 2011,
targeted at reducing foreign buyers.
However, the market remained strong
and the government introduced the sixth
set of measures in October 2012, which
Loan Length capped at 35 years and a
lower 40% loan-to-value (LTV) ratio for
non-owner-occupier buyers.
In 2013, the Singapore government
implemented two further sets of
measures to quell the continued heat in
the residential market. It raised the ABSD
and lowered the LTV ratio. Subsequently,
the amount of mortgage credit that
borrowers could obtain for a mortgage
loan via the Total Debt Servicing Ratio
(TDSR) framework was also restricted.
Buyers are still digesting these raft of
measures and residential transaction
volumes have slowed somewhat.
In the UK, there was considerable
uncertainty around the time of the
changes to the Stamp Duty Land
Tax (SDLT) in 2013, which affected
transactions over 2 million around the
time of implementation. However, these
measures were later absorbed into the
market, with no lasting impact. Similarly,
there is now ongoing discussion around
the potential introduction of a Capital
Gains Tax next year for overseas buyers,
in addition to the Mansion Tax debate.
This is causing some uncertainty at the
top end of the market.

Johannesburg
Tokyo
Sydney
Paris
Berlin
Rome
Beijing

Cost for an overseas buyer purchasing a 2 million property

Hong Kong

London

New York

Cost to buy

Cost to occupy

Cost to buy

Cost to occupy

Cost to buy

Cost to occupy

140,000

1,854

170,000

2,485

56,500

22,992

Singapore

Dubai

Dublin

Cost to buy

Cost to occupy

Cost to buy

Cost to occupy

Cost to buy

Cost to occupy

60,000

1,905

80,000

no charge

40,000

4,300

28 29

The taxation and regulatory


landscape for overseas buyers
Country

Australia

China

Stamp duty or transfer duty

Capital gain

Annual tax

-- $0 $14,000 = $1.25 for every $100


-- $14,001 $30,000 = $175 plus $1.50
for every $100 over $14,000
-- $30,001 $80,000 = $415 plus $1.75
for every $100 over $30,000
-- $80,001 $300,000 = $1,290 plus
$3.50 for every $100 over $80,000
-- $300,001 $1m = $8,990 plus $4.50
for every $100 over $300,000
-- Over $1m = $40,490 plus $5.50 for
every $100 over $1,000,000
-- Over $3m = $150,490 plus $7.00 for
every $100 over $3,000,000.

Same as income tax rates:


Annual Land Tax. Max of 2%
-- 0 $18,200 = Nil
for property valued over AUD
-- $18,201 $37,000 = 19c for
2,519,000.
each $1 over $18,200
-- $37,001 $80,000 = $3,572 plus
32.5c for each $1 over $37,000
-- $80,001 $180,000 = $17,547
plus 37c for each $1 over $80,000
-- $180,001 and over = $54,547 plus
45c for each $1 over $180,000.

40,490

Stamp duty 0.05%


Deed tax 3%.

20% if second home. CGT usually


included in price and so borne by
the buyer.

30,050

No individual tax as yet.

4% (Transaction fee).

Effective stamp duty


on a 1m property for
purchasers

Country

Italy

Japan

United
Kingdom

40,000

Dubai

France

-- New housing 0.715%


-- Second Hand 5.09% to 5.79%.

Standard rate for second home of


33%. Digressive rate applied from
6th year, exempt after 22 years.

Based on notional rent and


rate varies marginally whether
main or second home. For
Paris region 1,000 to 3,000
per year.

-- 25%

Land tax rate is determined


individually in each
municipality.

50,000

Germany

Real Estate Transfer Tax of


3.5% to 6.5%.
-- Up to $2 million 1.5%
-- $2 million to $2,176,470
$30k + 20% excess over 2 million
-- $2,176,470 to $3 million 3%
-- $3 million to $3,290,330
$90k + 20% excess over $3 million
-- $3,290,330 to $4 million = 4.5%
-- $4 million to $4,428,580 = $180k +
20% excess over $4 million
-- $4,428,580 to $6 million = 6%
-- $6 million to $6,720,000 = $360k +
20% excess over $6 million
-- $6,720,000 to $20 million = 7.5%
-- Over $20 million to $21,739,130 = $1.5
million + 20% excess over $20 million
-- Over $21,739,130 = 8.5%.

Special Stamp Duty (although


this is a capital gains tax) based
on when property acquired and
holding period:
1) Acquired on/after 10 Nov 2010
and before 27 Oct 2012:
-- 6 months or less = 15%
-- >6 months but 12 months or
less = 10%
-- >12 months but 24 months or
less = 5%
-- >24 months but 36 months or
less = N/A

Rateable value of 5% based


on annual rental value of
property.

15,000

7,150

Malaysia

Stamp duty or transfer duty

Capital gain

Annual tax

-- 3% on cadastral value
-- 7% if luxury residential
Plus Cadastral tax of EUR 168
(if first home), or 1% of price if
additional homes.

33% if sold within 5 years,


exempt thereafter.

Yes but negligible.

70,000

JPY 200,000 600,000


depending on value:
-- 3% Acquisition tax
-- 0.4% Registration tax new-build.

-- 39% if held <5 years


-- 20% if held >5 years.

-- 1.4% to 2.1% depending on


municipality
-- 0.3% city planning tax.

33,000

-- Up to 125,000 0%
-- 125,001 250,000 1%
-- 250,001 500,000 3%
-- 500,001 1 million 4%
-- 1,000,000 2 million 5%
-- Over 2 million 7%
If bought by a non-natural person
15% for over 500,000.

Capital Gains Tax to be


introduced.

Council Tax (variable).

40,000

-- First RM 100,000 1%
-- Next RM 400,000 2%
-- Above RM 500,000 3%.

-- Ownership up to 5 yrs
30%
-- Less than 5 yrs 0%.

-- Based on annual rental value.


Generally 6% PA
-- Quit Rent of 1 2% (generally less
than RM 100,000).

30,000

-- Typically 0.1% and 0.3% of


property value.

20,000

Based on rental value of property:


-- Up to SG$8,000 0%
-- SG$8,000 SG$55,000 4%
-- SG$55,000 SG$70,000 6%
-- SG$70,000 SG$85,000 8%
-- SG$85,000 SG$100,000 10%
-- SG$100,000 SG$115,000 12%
-- SG$115,000 SG$130,000 14%
-- Over SG$130,000 16%.

34,500

-- 2%

Hong
Kong

Extra 15% on top of standard rates for


overseas buyers.

Ireland

-- Up to EUR 1 million 1%
-- Over EUR 1 million 2%.

Singapore

-- First SG$180,000 1%
-- Next SG$180,000 2%
-- Over SG$360,000 3%
Plus 15% for foreigners.

None.

Foreigners pay additional


10% surcharge.

2) Acquired on/after 27 Oct 2012:


-- 6 months or less = 20%
-- >6 months but 12 months or
less = 15%
-- >12 months but 24 months or
less = 10%
-- >24 months but 36 months or
less = 10%.

-- 33%

Netherlands

Effective stamp duty


on a 1m property for
purchasers

South Africa

-- Up to EUR 1 million = 0.18%


-- Over EUR 1 million = 0.25%
(on value above 1 million).

10,000
Thailand

No Stamp Duty payable. Transfer duty


paid by buyer:
-- R0 R600,000 = 0%
-- Over R600,000 = R1,000,000 = 3%
-- Over R1,000,000 = R1,500,000 =
R12,000 plus 5% on value above
R1,000,000
-- Over R1,500,000 = R37,000 plus 8%
on value above R1,500,000.

-- 13.3%

Payable but rates vary depending


on municipality.

75,400

Stamp duty borne by seller:


2% Transfer tax, shared between
buyer and seller.

Income tax varies on time


property held and value.

Exempt when owner-occupied.

10,000

30 31

Global
influences
on design
Buyers exposed to
international trends are
expecting ever more from
their homes. The residential
industry, increasingly with
international capital and
experience, are responding
to these demands. This
globalisation is having a
direct influence on the end
product. In London this
has led to marked
improvement in the
underlying amenity offer.

Lifestyle living

Inspiration from Canada

Residents of modern developments are


increasingly looking for more than an
apartment, often expecting so called
lifestyle packages. These include a
gym, a pool and wellness centre, with a
steam room, sauna and treatment rooms.
Arguably, London is behind the curve; in
New York full service spa and gyms were
the norm in the early 2000s. In 2003,
London Albion Riverside pointed the way,
but it was 199 Knightsbridge that set
the new benchmark in 2005 with a five
star concierge, valet parking, business
facilities, a swimming pool, a gym and
treatment rooms, at the time managed
by The Hyatt Hotel. The developer was
Hong Kong born Sammy Lee, who had
the international experience to see where
London could improve.

Like London, Vancouver and Toronto also


have incredibly diverse demographics,
but in terms of innovative design, these
cities stretch well ahead of London and
provide exciting examples from which we
can learn.

The latest trend in London is the


emergence of the Residents Club or
lounge. Residents only access to a wide
range of facilities, which might include
interactive meeting rooms and business
centre, a lounge, private dining rooms,
cinema, crche and roof terrace. These
have been offered as the norm for some
time in New York and across Asia. Many
new-build developments also offer
concierge services that can help with
all your lifestyle requirements such as
travel arrangements, restaurant bookings,
theatre tickets etc. Some luxury schemes
have partnered with exclusive hotels; the
obvious example is Candy and Candys
One Hyde Park partnering with the
Mandarin Oriental.
This trend isnt just in the super prime
market. Developers in the more
mainstream market are emulating the
top end of the market. Some developers
have provided more unique and unusual
facilities, such as St Georges One
Blackfriars, where residents will have use
of a snow room and yoga terrace;
Fulham Riverside has outside badminton
courts, while London Dock has a golf
simulator.
It has been estimated that good facilities
add significantly to the price. However,
the key is to provide an offering
appropriate to the scheme, its location
and implicit buyer profile. If the size of
the facilities is too big or too luxurious
for the scheme, it could fail, particularly
as facilities add to costs and therefore
service charges.

Most already incorporate a generous


array of additional amenities, such as
large private dining and billiard rooms,
with adjoining professional kitchens and
roof terraces, so that a luxury house
lifestyle can be enjoyed, without the full
price tag of the luxury house itself. This
is hugely popular with retirees who are
looking for a lifestyle change, rather
than a traditional downsize. And for the
younger generations, schemes like 21
Nelson Street in Toronto have stunning
rooftop bars with cabanas, sofas,
fireplaces, barbeque, hot tubs and private
party rooms.

Globilisation greatly
influences society and
lifestyle through the
international sharing of
views, products, ideas, and
culture. As individuals and
their lifestyles have evolved,
it is natural that our homes
have too.
In addition, Canadian developers have
capitalised on the unrelenting Chinese
appetite for some time, being feng shuiaware on every new-build and having
experts on-hand to advise in this regard,
as well as omitting unlucky numbers from
doors and floors. However, there is also
an array of more specialised products
now on the market; for example, Olive
on Vancouvers Cambie Street was
designed for people who love to cook
and entertain, so sacrificed bedrooms for
amazing kitchens, and made the most of
the Wholefoods at ground floor to aid the
marketing campaign. Elsewhere, Festival
Tower in Toronto and Brava in Vancouver
were both designed to incorporate the
respective Film Festival HQs in the
ground floor, providing residents access
directly to the festivals but also the ability
to use the cinemas as private screening
rooms for the rest of the year.

32 33

City snapshot
In this section we provide an
overview of key themes in a
selection of global markets.

New York
Lower Manhattan, a market that used to
be dominated by office buildings, has
now adapted to be a live, work, play
environment. The area bounded by
Chambers Street to the southern tip of
Manhattan, and East River to Broadway
constitutes Lower Manhattan. As of
the first quarter of 2014, approximately
61,000 residents lived in lower Manhattan
in 30,500 units. There are now 323 mixeduse and residential buildings, with 2,288
units in nine buildings under construction.
These numbers are expected to rise
consistently as downtown becomes a
viable residential option for workers and a
growing student population.

11m
Population
The projected growth for lower Manhattan
residents is 63,000 residents in 31,500
units by the end of 2014 and 64,000 in
32,000 units in 2015. The luxury rental
market has taken root downtown. Lower
Manhattan ended the first quarter of
2014 with rent above the Manhattanwide average with median rental rates
at 2,040 per month and 33 per
RSF. Lower Manhattans vacancy rate
dropped to 1.54% during this same
period. Residential rental conversions
have grown in the past decade in the
downtown Manhattan market. This
trend is largely attributed to the NYC
government program, 421-g. This
program provides tax exemption and
abatement for conversion of commercial
buildings to multiple dwellings. It was
implemented in fall of 1995 and expired
in 2006. However, many residential
developments are still benefitting from
the programs incentives. Eligible projects
include conversions in most of the areas
in Manhattan south of Murray Street, City
Hall, and the Brooklyn Bridge.

Office to residential conversion incentives


can help meet housing demand,
increase property values, and attract
new neighborhood amenities. However,
barriers to residential conversion include
complications with zoning/planning,
community conflict, and possible strain
on municipal services. Issues can arise
when it comes to rent stabilisation and
tension can exist when developers convert
historical buildings into residential uses.
However, the rate of conversion in
Downtown looks likely to slow, due to rising
demand for office space, and rising office
rents. This is being driven by the mass of
technology and creative startups moving
downtown. A study released by the New
York Economic Development Corporation
estimates that high-growth companies will
need 17 million sq ft of space by 2025.
However, Class B and Class C office
space is shrinking, in part because of the
residential conversion boom.

230,000
Average property price
The revitalisation of downtown makes
the area more appealing for residents.
New office space additions with the
completion of World Trade Center
buildings have drawn business and retail
to lower Manhattan. The 800,000 sq ft
World Trade Center Transportation Hub
houses the PATH station and 350,000
sq ft retail complex. The redevelopment
of the South Street Seaport (Pier 17) will
add another 365,000 sq ft of retail, dining,
and entertainment space in 2016. The
city has also invested 25 million in a
capital reconstruction project to develop
the infrastructure of Broadway. There is a
new appeal for families in the downtown
market. Imagination Playground, an
innovative space designed by David
Rockwell designed to improve learning
through fun, caters to this growing
demographic.

34 35

Hong Kong
The residential sector in Hong Kong
remains very much under the influence
of market cooling measures. This has
stripped out many would-be speculative
buyers, and also acted as a mild
deterrent for overseas buyers, thus the
mass market is now mostly led by local
buyers who are upgrading.
The second-hand market consists almost
exclusively of Hong Kong permanent
residents who intend to live in the
property themselves. A large proportion
has been first time buyers, reflecting the
governments favourable stamp duty tax
amendments for this group. With lending
rates still incredibly low, buying currently
makes more financial sense for many
residents than renting.
Various stamp duty measures introduced
last year have been aimed at dissuading
overseas buyers from the market.
Although this has generally worked
well, many developers are now offering
generous discounts on the new-build,
particularly in the prime market, which
has helped stir recovery in the market,
especially in terms of demand from
the mainland. Strong rental returns for
some of the primary units now make
them viable investment opportunities
again. In order to continue to cool the
market, particularly amongst overseas
buyers, most commentators think that
the government will have to roll out more
serious tightening measures.

7.2m
Population
Private housing supply for 2014 is
projected to increase by around 17%
year-on-year, which equates to an
additional 2,270 units, compared with
2013 estimates. This would bring total
housing supply for the year to 15,820,
which is still well below the governments
target of 20,000 new units per year.
The additional supply may have limited
impact on overall mass market prices this
year, though its geographic concentration
is likely to have a noticeable impact at
a sub-market level. The New Territories
are the main focus, in particular Yuen
Long, Tsuen and Shatin, which combined
will assume 40% of all new supply. We
could see this reflected in slight price
movements in these specific areas.

Looking forward, we expect the


divergence between different segments
of the market to continue, both in terms
of sentiment and underlying dynamics.
The luxury end of the market is likely to
be relatively resilient, given the limitations
on existing stock and future supply. In
the primary market, we anticipate activity
levels to increase, reflecting a pick-up in
supply, as well the fact developers are still
offering discounts. These discounts are
reducing the traditional premium on newbuilds, meaning values in the primary and
secondary markets are converging. As a
result, demand in the secondary market
has been relatively slow and subdued.
Following the announcement of the
tapering measures by the US Federal
Reserve, Hong Kongs interest rates may
enter an upward cycle in the second half
of 2014, which could sequentially affect
the residential price level. As such, we
expect residential values to face a mild
correction of 5-10% over the course
of 2014.

835,000
Average property price
The overall rental market in Hong Kong
remains underpinned by strong occupier
demand. This was particularly the case,
following the cooling measures in the forsale market. Some would-be purchasers
adopted a wait-and-see mode and opted
to rent while they did so, at least until
effective residential values matched
expectations. Rental growth in the mass
market is surpassing that in the luxury
market that consists of much larger
properties. The latter, which is mostly
driven by ex-pat demand, was relatively
subdued over the last quarter, reflecting
little net-change in expat hiring. This
frozen demand has frozen rents over the
last few years.

36 37

Ho Chi Minh City

Bangkok
Since December 2013, the overall
Bangkok condominium market has
been affected by the prolonged political
turmoil. There has been a slowdown in
sales, new launches and re-sales in all
areas in the first half of 2014.
However, following the coup on 22
May 2014, there have been signs of
recovery in the downtown condominium
market with the successful launch of
the Magnolias Riverfront Residence
project, where more than 150 of 379
units have been booked at a price over
THB 200,000 per square metre, even
before the presales event. This proves
that sentiment in the luxury condominium
market has begun to rebound after a sixmonth slowdown.

10.5m
Population

There are two separate condominium


markets in Bangkok: downtown and
the midtown/suburban market. We are
not significantly concerned about the
downtown market since there is limited
new supply and a low level of builtbut-unsold inventory; our concern is
focused mainly on the midtown/suburban
market, where developers have been
building similar one-bedroom products.
The completion of more than 100,000
condominium units in 2014 and 2015 in
this area will be a crucial stress test for
the midtown/suburban market at a time of
reduced demand.
The key indicator will be the number
of units transferred compared to units
sold. In the first half of 2014, many
well-known listed developers reported a
higher default rate, where buyers do not
proceed with a purchase on completion
of the building because of both
speculators leaving the market and the
tightening of lending criteria for property
buyers by banks.

Typically, buyers pay 10-30% of the


purchase price during construction
and 70-90% on completion of the
building; this payment structure makes
condominiums more affordable but also
attracts speculators hoping to resell
before completion.

120,000
Average property price
Resale units from speculators and
existing unsold inventory from developers
in the midtown/suburban market will
restrict the possibility of prices rising in
the midtown and suburban areas. By
contrast, the dynamics in the downtown
market have been very different because
of limited new supply.
About 80% of the buyers of luxury
downtown properties are Thai, whereas
the midtown and suburban markets are
almost 100% driven by Thai buyers.
The dominance of domestic purchasers
means that the Bangkok market is very
resilient and although the market may
experience a slowdown during periods
of political unrest, prices have not fallen.
In fact, prices have continued to rise for
the most popular properties. Prices for
new projects and resale prices for the
best condominiums in the best downtown
locations are expected to continue to rise.

The real estate market in Vietnam is


relatively immature. The market was
essentially kick-started by a surge of
foreign investment following the lifting
of US embargo in 1994. Although the
first modern development project was
launched in 1994, the market didnt
become firmly established until 2000,
once Vietnam had recovered from the
Asia financial crisis. Subsequent to this
the market grew strongly, peaking with
massive house price growth of 30% in
2007/8. In response, tighter monetary
policy was introduced; the mortgage rate
was 22% by the end of the year. This,
coupled shortly after with the financial
crisis caused the market to slow with a
3.6% price fall in 2009. Despite a buoyant
2010, largely thanks to the economic
stimulus packaged employed by the
government, the market stagnated in
2011-2012.

8.1m
Population
The market is now in recovery mode.
The downward trend in residential
prices has slowed down and sales have
picked up strongly.

There is huge demand for smaller more


affordable units. Estimates suggest
around 300,000 people are looking to buy
property in Ho Chi Minh City. In addition,
around 150,000 immigrants arrive
annually for work or study. The majority
of these potential buyers will look for
affordable houses sized between 50-70
sq ft and with a price below US$50,000.
However, supply remains focussed at
the high-end of the market and demand
in the mass market outstrips supply. In
contrast there are approximately 17,000
unsold condominiums. Most of them
have the unit price above US$50,000.
In response to the changing market,
some developers have quickly adjusted
their project designs and unit layouts.
In-house amenities i.e. swimming pools,
retail areas, unit sizes and unit types are
taken into account. Unit areas have been
reduced by 10-20 sqm per unit for the
same unit type with the aim of meeting
buyers tightening budgets. In addition,
each bedroom often has a window to
maximise natural light, wind and fresh air.
Overseas buyers only make up a modest
share of purchasers. Most of which are
recorded at a few projects developed by
foreign developers i.e. Singapore and
Korea. The key barriers discouraging
foreign buyers are legal issues which
allow certain eligible people to own
a condominium, limit the period of
ownership to 50 years maximum and
do not allow foreign owners to sublease or re-sell their apartments. In
addition, procedures take time and are
often complicated. As a result, 95% of
expatriates working in Vietnam prefer
renting than buying a house unless they
are married to a Vietnamese person.

Looking forward, the residential


market will continue to show gradual
improvements as mortgage costs have
now reached five year lows while the
Governments support package for the
social and affordable housing market
starts to feed through. The proposal of
Foreign Ownership has been reviewed.
If it passed, the residential market is
expected to attract more foreign buyers
given their relatively equal rights as local
people. However, the full recovery is
expected to gather pace only in 2015 as
macroeconomic conditions improve while
prices for real estate projects will take
even longer to recover.

71,000
Average property price

38 39

Sydney
The Sydney residential market is
undergoing a prolonged period of
strength, with many parallels to other
key global cities, such as London and
New York. At a macro level, the wider
Australian economy has proven resilient,
interest rates remain low, and the political
landscape is typically benign. The world
class English-speaking education system
also adds to the appeal, which altogether
continue to attract overseas investors,
particularly from China. At the same time,
domestic demand is being driven by
huge population growth. The population
of Sydney is expected to continue to
grow at 1.7% per year up to 2029, or
25% in total over this period. This is 0.2%
per year above previous historic levels,
putting further pressure on housing.

4.8m
Population
Mounting demand for housing is set
against a backdrop of limited supply.
Although there are over 26,600
apartments currently under construction
across the city, this is set against a
considerable back-log. The city is notably
restricted by land availability through
geographical limitations, zoning, planning
restrictions and suitable infrastructure.
These are all barriers to increasing the
delivery of residential supply. However,
as the market gathers pace, interest from
Asian developers such as of Greenland
and SP Setia are helping to increase the
amount of units delivered to the market.

The increase in supply is also being aided


by developers finding more lucrative
uses for obsolete commercial sites, as
the supply of new office space surges
and tenant demand remains stable. With
values for residential increasing, and
demand for city centre living growing, the
best and most viable use for outdated
office buildings has been the conversion
to apartments. Although construction
levels are now making some inroads, it is
some way off satisfying demand and thus
the familiar story of rising values prevails.
Buyer and renter activity has remained
strong. However there remains a scarcity
of stock. As a result, the apartment
market has recorded strong levels of both
capital and rental growth over the past 12
months, with increases of over 12% and
5% recorded respectively.

301,000
Average property price
Significant increases in capital values,
following rapid improvements in buyer
demand, has made entry into the
residential market very difficult for first
time home owners. Just 7.8% of all
owner occupier purchasers are made to
first home buyers, considered against
the added encouragement from the
Governments First Home Owner Grant
Scheme. Affordability remains the biggest
issue for first time buyers with high pricing
continuing to lock out new entrants.

40 41

Amsterdam
The Dutch residential market is undergoing
considerable structural and regulatory
change. Traditionally, government
policies have focussed on stimulating
home ownership and facilitating housing
corporations in the social housing sector.
As a result, the private rented sector has
been marginalised, unregulated and
difficult for commercial investors to access.
However, this is now changing. The global
economic crisis, austerity measures and
the increasing demand for private rented
accommodation has encouraged a shift in
policy to boost this segment of the market.

1.25m
Population
Amsterdam is considered the fifth most
important economic region in Europe.
Consequently it is listed amongst the
most attractive cities for business activity
in Europe and almost 2,500 foreign
companies are located in Amsterdam.
In addition, due to its cultural amenities,
favourable living environment and
relatively high standard of living,
Amsterdam has attracted a young and
lively population. Therefore, there is
increasing demand from relatively young
and well educated people for private
rented accommodation. However,
although construction volumes in the
capital are increasing overall, and most
of this is being delivered for private
accommodation, there still remains a
substantial shortage.

Investor appetite for residential property in


Amsterdam is already significant: 15% of
the total residential investment volume in
the Netherlands is invested in residential
projects in Amsterdam. Most of these are
within the private rented sector.
Nonetheless, the market for unregulated
rental housing remains tight. In the past,
the unregulated rents in Amsterdam have
increased disproportionally compared
with the other major European cities.
Residential yields have been, and remain,
relatively high. This, coupled with stable
cash flows from rental income and
positive growth prospects, is attracting
foreign investors.

185,000
Average property price
Overseas buyers are a new phenomenon
in the Amsterdam residential markets.
Until recently, the market was the exclusive
playing field of Dutch institutional investors
and a group of large private property
companies and family offices. Generally,
the institutional funds have been targeting
new developments and portfolios in the
core regions, whereas the private property
companies often took up the disposition of
the institutes, creating value by selling off
vacant individual units to owner-occupiers.
The recent widening of the commercial
segment has created liquidity and
openings for foreign buyers. Recently,
investors have acquired large residential
portfolios. The most striking transaction
and largest residential deal to date, was
the purchase of a 5,500 unit portfolio from
a distressed housing corporation.

42 43

Munich

Berlin

Hamburg

Munich ranks among the most


successful and most dynamic business
locations in Europe. The city and its
periphery offer extremely attractive labor
and living conditions. Furthermore,
Munich is also known for its excellent
education skills and the above-average
level of education of the local population.
Munich is the third largest city in
Germany behind Berlin and Hamburg.
The unemployment rate is at 5.1%, well
below the Germany average of 6.6%.

Berlin has one of the fastest growing


economies in Germany. It has a broad
and increasingly stable foundation.
Tourism is one of the largest employment
sectors; Berlin now ranks the third tourist
destination in Europe, behind London
and Paris. It is also proving incredibly
fertile for new start-up companies. The
good employment prospects and rising
incomes means Berlin is becoming an
increasingly popular place to live. Supply
has not been able to keep up with the
growing demand. There is a healthy
supply pipeline, but even if everything
planned is actually built, the number of
households is expected to increase four
times faster than supply. In addition, new
supply appears to be mostly targeting the
luxury end of the market.

Hamburg is another one of Germanys


key economic hubs. It is its most active
foreign trade and transit location, as well
as being home to the most publishing
houses, and media and advertising
companies. As measured by population,
Hamburg is Germanys second largest
city, with around 1.8m people. The
population is expected to increase by
another 1.1% to 2018, and household
growth is outstripping this, at 2.3% growth.
This is putting even more pressure on an
already strained housing market.

3.4m

229,000

Population

Average property price

Against this supply and demand


backdrop, the owner occupation sector
is currently performing well, and looks
likely to continue to do so. Despite
increasing prices and rents in Berlin are
favourable compared with most other
major cities in Germany. This partly
reflects lower earnings.

Hamburg has one of the lowest vacancy


rates in Germany, at 0.7%, and it
undisputedly ranks among the most
sought after residential locations in
Germany. Reflecting this and the supply
and demand imbalance, rental levels
have increased consistently over the
last few years. Currently, rent average
for existing stock is around 10 EUR per
sqm per month. Condo apartments are
on offer at an average of 2.950 EUR
per sqm. Compared to 2011 this is a
further strong rise of 5%. Given the bright
outlooks regarding development of the
economy and demography, rents and
sale prices of apartments will continue
to increase in the short to medium term.
Although this trend can be particularly
expected in the preferred neighborhoods,
a further strong increase of rents and
sale prices will occur also in locations of
medium-quality.

1.4m
Population
The population of Germany has been
in marginal decline. However, there is a
wide regional disparity, with rural areas
loosing populations and key cities are
undergoing substantial growth. Munich
is one of the strongest growing cities,
with a 12% increase in its population in
the last decade.

325,000
Average property price
Reflecting its increasing population, there
is extremely high demand for residential
property in Munich. Despite many
residential new developments throughout
the city, demand is not being satisfied by
the residential supply. The city has set
housing targets of 7,000 units per year,
and has tried to zone large development
areas to try and help stimulate activity.
However, construction levels are still
below where they need to be. As a result,
rents and prices in Munich are among
the highest anywhere in Germany, and
residential investments in Munich are often
considered crisis-resistant as a result.

174,000
Average property price
Until August 2006, there was a uniform
3.5% rate of Grunderwerbsteuer (land
transfer tax). Since September 2006,
the federal states have been able to
determine their own tax rates. Following
the change in the law, the state of Berlin
was the first to raise its tax rate to 4.5% in
2007. It further increased the tax in 2014
to 6% among the highest tax rate in
Germany. Agents costs are also among
the highest at up to 6% net.

1.7m
Population

44 45

A comparison
of the private
rental sector
The private rented sector
has been one of the most
talked about parts of the UK
property market in recent
years. Its rapid growth is
opening up huge investment
opportunities for the
development and ownership
of professionally-run,
service-driven rental blocks.

Over the last decade there has been


huge growth in the private rented sector,
with 1.5 million more renters across
the UK. It now accounts for 25% of all
households in London and the majority of
new households forming are in the private
rented sector. This rise is the result of
demographic changes, combined with
affordability and mortgage constraints.
However, it is also underpinned by an
increasingly discerning renter making a
lifestyle choice, who are keen to live in
good quality, well managed rental stock.
The size of the private rental market in
the UK is now in excess of 900 billion
which is similar to the size of the entire
commercial market. However, only a
very small proportion, around 2% is
in institutional hands. The majority is
in fragmented ownership with poor
management, often of poor standard
and specification and generally with no
amenity or services available. However,
institutions and other property companies
are now seeing the market potential.

17%
Of households rent privately
in England

The opportunity
Investor demand for residential income
stock lies behind the core nature of the
income stream; it correlates very strongly
with RPI, wage price inflation and pension
fund liabilities. It is also relatively low in
volatility, and instead highly sustainable
through the peaks and troughs of the
economic and property cycles.
Most funds now seem to be looking
seriously at a way into this new market.
There is every likelihood that prevailing
investment yields will compress, premium
rental pricing could be sustainable, and
additional income could be received
for services offered to rental customers.
These factors could drive up the value
of newly built and let assets quite
considerably, albeit at present, and quite
sensibly, they are not taking into account
the current underwriting of joint ventures
and fundings. These factors, together
with the nature of this income, are now
driving a 20 billion plus wall of capital
towards the UK resi-investment market.

24%
Of households rent
privately in London
The opportunity to deploy major capital
into the residential investment market
over the last few decades has only really
materialised in the last 3 or 4 years. This
is due to the change in balance sheets of
house builders and property companies,
banking arrangements and the
international drive for core and annuity
style income streams. The main source of
capital is currently coming from the US,
Canada, mainland Europe and the Middle
East. However, the domestic funds are
also catching up fast.
The main hurdle in the market is the
lack of stock. Large apartment blocks
work best, given the potential for greater
efficiencies and the economies of scale.
However, there are few to none unbroken
blocks available to purchase. Hence
the real opportunity lies in funding and
developing this kind of stock.

46 47

Current market developments


Reflecting the strong fundamentals,
momentum in the market is now
growing. Over the last eight months,
CBRE has seen 2.1 billion of funding
for PRS projects, and there is 4 billion
more in the pipeline. In London alone,
there are now 90 PRS developments.
This has been in the form of bespoke
development, but also as block sales
in new large, multi-phased schemes;
PRS has typically provided the forwardsales on schemes that are, on the
whole, for sale, or it has helped wrap
up large schemes towards the end of
the sales period. This helps accelerate
the consumption of land, and therefore
enables developers to realise land values
much faster.
Some of the new stock is being delivered
by registered housing association
providers, such as Places for People,
Genesis, London & Quadrant, and
A2Dominion. These established
providers now often add a significant
PRS component to their in-house
developments, or otherwise forwardpurchase off other developers to bolster
their own holdings.
In addition, specialist management
companies, such as Get Living London,
Be Here and Fizzy Living, have been
successful, both in terms of brand
creation, and securing institutional
investment from overseas to facilitate
the schemes.

The most significant project to date has


been the conversion of the Athletes
Village at Stratfords Olympic Park, into
a substantial 1,500 PRS units. This was
delivered by Delancey and Qatari Diar,
with Get Living London managing the
development, securing rapid take-up
rates over its first few months. The scale
of this project highlights the scale of the
greater opportunity, both in London and
in UKs regional cities.
The PRS has also received full
endorsement from the government, which
recognises build for rent as an obvious
solution to the housing shortage. In terms
of funding support, the government has
allocated 3.5 billion to the Private Rental
Guarantee Scheme, as well as 54 million
towards the London Projects under The
Build to Rent Fund.
Based on current trends, the number
of private rental households in England
could rise to around 5.5 million over
the next decade. Much of this growth
would need to be supported by new
development, which could at least in part
need to be funded by institutions. Growth
in the market is not unprecedented; thirty
years ago, institutions made up just 2% of
the US multi-family housing market, today
they allocate 25% of assets.

48 49

Global
comparisons
at a glance
As the UK market is
evolving we look for
inspiration from overseas,
where this market tends
to be much more mature
and well established as an
asset class.

Type of stock

Security of tenure

Rent controls

Tax regimes

Investor profile

In the Anglo-Saxon countries, PRS stock


typically tends to be in houses. However,
in the US and continental Europe most
PRS stock is flats. Large blocks of flats
are crucial to enabling economies of
scale, hence these blocks are forming the
bulk of PRS development in the UK.

The private rented sector has evolved in a


variety of ways across the world, typically
in very different regulatory, tax and
cultural environments.

There are some countries that exercise


rent regulations, primarily aimed at
improving affordability for low-income
households, but there is no clear
evidence to confirm that this keeps
average rents down overall. Typically,
rent controls are relevant in relation to
increases, (i.e. as an index), rather than
in relation to the initial rent. However, they
can provide another layer of security,
reducing uncertainty in relation to future
housing costs.

The UK tax regime currently appears


to be the least favourable towards
private landlords, as they do not receive
depreciation allowances, they must pay
capital gains tax when dwellings are
sold, and they may not offer any revenue
losses against other taxable income
(known as negative gearing). This is in
stark contrast to many other countries;
for example, depreciation and negative
gearing is permitted in Australia, France,
Germany and the US. Naturally, countries
with large PRS tend to have tax regimes
that support investment, particularly in
relation to depreciation allowances and
negative gearing. Some commentators
feel that large-scale supply increases are
not realistic without some tax allowances.

In Germany, Austria, Sweden, the


Netherlands and the US, there is a strong
institutional presence. Investment is
motivated by long-term income returns,
and the opportunity to diversify assets.

The size of the PRS sector has shifted


dramatically in many countries over the last
twenty years, growing significantly in the
UK, Australia, Ireland and New Zealand.
However, the one exception is Germany,
where it has remained consistently large.
PRS has been in long-term decline in
Belgium and the Netherlands.

There is a marked difference in security


of tenure across various countries,
which has a considerable impact on the
type of people attracted to the sector;
naturally, where there is strong security
of tenure, as there is in Germany, families
feel more comfortable settling into rental
accommodation. Where this is not the
case PRS has tended to be a residual form
of housing; either for young adults who
want short-term flexibility, or for those of
any age who cannot afford to buy.
In Austria, Belgium, Denmark,
Germany, the Netherlands, Sweden
and Switzerland, tenants have the right
to remain while they comply with their
lease terms and can be evicted only
on very limited grounds. In Finland,
France, Ireland and Norway, tenants
have more limited security at the end
of the initial lease period. In Australia,
Spain and the US, security is minimal
after an initial lease.
Reflecting the greater shifts in this market
in the UK, traditional lease terms are also
undergoing change, with institutional
landlords offering up to three years, in
contrast to the traditional 1 year with a six
month break.

Although intuitively many think that strict


rent controls would depress demand in
the private rental sector, there appears
to be little correlation between countries
with strict regulations and a large PRS;
examples include Sweden, Germany and
the Czech Republic. Rent controls also
exist in 200 cities in the US, including
New York City, but it only covers
roughly 4% of the stock and 10% of the
households living in the sector.

Proportion of PRS stock owned by individuals


Sweden

Austria

Denmark
Netherlands

Tenure profile, global comparison


25

Australia
Denmark
England

19

28

17

17

Norway
Spain
USA

10

14

39

32

16

76

2
32

Private rented (%)

Germany

61

82
3

65
Social rented (%)

Owner occupation (%)

63
75

Norway

78

US

78

58

21

44
60

England

65

47

Germany
Netherlands

53

Finland

Switzerland

70

In contrast, investors in the UK and


Australia are typically individual buyto-letters. These landlords tend to be
attracted by the potential for capital
gains. In the UK institutional investment is
starting to come forward from domestic
and overseas opportunity funds, pension
funds and sovereign wealth funds.Where
there is a strong presence from institutions
and companies, as there is in Germany,
Austria, Sweden, the Netherlands and the
US, investment is motivated by long-term
income returns, and often, the opportunity
to diversify assets.

Spain

86

Belgium

86

France

95

Ireland

95

Australia

95

50 51

London rides
the global
retail wave
In the period following
the global financial crisis,
luxury retailers embarked
on a wave of international
expansion. This largely
reflected a need by retailers
to diversify away from low
growth western economies
and to tap cross-border
opportunities. This retail
globalisation is being
accelerated by online
brand exposure and price
comparison.

Europe drives expansion

London is the pick of the bunch

Europe has been a driving force behind


the recent expansion of the luxury retail
market. This is partly because the bulk
of the worlds luxury brands originate
in Europe. But it also reflects retailers
taking advantage of open EU borders,
which has effectively generated a super
expanded EU retail market. However,
European luxury brands are also pushing
further afield, with a large flow to Asia.

London, Paris and New York remain the


unchallenged global retail triumvirate;
they are the worlds pre-eminent leisure
shopping attractions. Milan follows
together with Frankfurt, Singapore
and Hong Kong. Following aggressive
marketing, and a weakening yen, Japan
has begun to emerge as a new shopping
hotspot too, attracting both Asian and
European visitors in large numbers.

In contrast, there has been less incentive


for Asia Pacific retailers to expand into
highly competitive western markets.
Domestic markets have been supported
by strong and continued rapid growth;
brand saturation is not yet an issue, with
few markets in Asia even close to retail
maturity. As a result, the flow of Asian
luxury brands into Europe and the US
remains small.
Despite the rapid expansion, there is
still significant growth opportunity for
international brands as the globalisation
process continues. In the past, cultural
and regulatory differences, difficulties
securing retail property and tariff barriers
made the successful cross-border
transfer of brands extremely challenging.
As a result most overseas investment
was in local chain acquisition. Although
the online marketplace brings its
challenges for retailers, it has allowed
retailers to increase brand exposure and
reach a wider spectrum of consumers,
making it easier to introduce brands into
overseas markets.
Retailers seeking international
representation usually start with a
flagship store in a foreign capital city
before opening a small number of stores
in provincial cities or regional shopping
centres. Once the required representation
has been achieved, they then move onto
another country, eventually building up a
global network of stores.
With high cross-border fertilisation many
global cities share the same international
brands. What were once exclusive luxury
brands are now commonplace in many
major global cities and airports. Although,
it may be true that overexpansion has
led to some loss of brand cachet, the
increasing commoditisation has resulted
in an overall increase in the quality of
retail offerings: a key benefit of luxury
brand expansion globally.

160m
Shopper visits to the West End
But, London is the worlds single most
popular shopping attraction with a greater
range of international retailers than any
other city. It is the cosmopolitan nature
of Londons shopping population that
has propelled the city to number one in
the global retail rankings. If a retailer is
not in London they are not considered
truly global. London is also the primary
springboard for new non-European retail
entrants into Europe.
Londons growth resurgence has
coincided with the completion of two giant
cutting-edge shopping centre schemes
by Westfield. These two schemes
have proved magnets for international
retailers seeking top-quality purpose-built
shopping centre environments.

21%
Of these are overseas visitors
Crossrail will further boost new retail
entrant levels when it opens in 2018. This
new main-line railway service, crossing
from west to east has triggered a wave of
adjacent stock renewal in the West End.
Partly reflecting the additional connectivity
from Crossrail, West End shopper visits
are expected to increase by 20%, or 30
million people, by 2023. This will clearly
boost activity and in turn rents.
With the very high levels of international
representation in London comes intense
competition. Central London is already
one of the most highly rented markets
in the world. With little in the way of new
space in the pipeline the city looks set
to get a lot more expensive in the future,
driving a ripple out and stock renewal into
currently secondary shopping areas.

52 53

The
prestige and
premiums of
office towers
There is a strong correlation
between a citys ranking as
a global financial centre and
the number of office tower
schemes, with New York,
Hong Kong, Singapore and
Tokyo high up the list on
both counts. The anomaly in
this scenario is London.

Despite being regarded as the worlds


preeminent financial centre and
possessing more towers than any
other European city, London is only
35th in the global list, with New York
in the top spot. This partly reflects the
restricted opportunities to develop
towers because of tight planning laws
and a scarcity of suitable development
land in London. Within Asia a high
density of tower buildings is viewed as
synonymous with being a successful
financial hub. As a result, authorities
in a number of Asian cities have tried
to boost their international profile by
building speculative tower schemes en
masse, in the hope that this will attract
financial occupiers. In contrast, London,
as the established financial centre does
not need to attract the large financial
occupiers by building tower schemes.
Londons growing stock of
world class office towers
Londons stock of tower buildings has
been enhanced over recent years,
with the addition of world class tower
schemes such as 20 Fenchurch Street,
The Leadenhall Building, Salesforce
Tower and The Shard.

18%
Rental premium for top floor
office building
These schemes mark a new phase in
Londons tower development, offering
more efficient floorplates, facilitated by
smaller cores. New towers have also
been designed to reduce occupational
densities, with 20 Fenchurch Street the
first tower scheme in Central London to
utilise a density of 1:8 compared with
the standard 1:10. Further innovations
to modern ways of working such as
intermittent atria at the Salesforce
Tower to increase natural light into the
deeper areas of a typical floor, and a
concierge style menu of service options
have been more commonplace. Whilst
towers in London had been obligated
as part of planning consents to include
public space at the top or bottom of the
building, these amenities have largely
turned out to be of substantial value
to prospective occupiers. The best
examples have been at the Salesforce
Tower and 20 Fenchurch Street.

Prestige and prime locations help


towers command premium rents.
Towers are often highly sought after due
to their iconic architecture and associated
prestige. Indeed, occupiers frequently
use tower addresses as a marketing
tool to boost their corporate image and
branding. As is the case in other cities,
Londons towers are located in core
areas close to transport links, making
them prime buildings for blue-chip firms.
As in the residential market, these factors
often enable tower buildings to command
a rental premium over other grade A
office buildings in the same market. In
the City, the trend is particularly strong
in new towers where the average rental
premium has risen sharply since 2011,
rising to 12% above the prime headline
rent in 2013.
Unsurprisingly, the rental premium varies
within different zones of the building. On
lower to mid-level floors, the premium on
new London towers averages around 3%
above the prime rent. Meanwhile, upper
floors can command an 18% premium, due
to high demand for the most prestigious
space in the building. Residential towers
achieve a premium of around 36% over the
local embedded value.
Tenant mix becoming broader
The tenant mix in Londons towers share
many similarities with those in major US
and Asian cities. Given its association
with finance, it is unsurprising that
the banking and finance sector has
accounted for 51% of the total office
space acquired in tower buildings in
central London over the past 20 years,
with the professional and insurance
sectors accounting for 15% and 10%
respectively.
However, the financial crisis has resulted
in a shift in emphasis away from
financial occupiers in recent years as the
sector consolidated. This has seen the
proportion of banking and finance tower
take-up fall to 37% in the past five years.
Indeed, since the leasing market entered
its recovery phase in 2013, the proportion
has fallen to just 18%. Meanwhile,
insurance and creative industries have
become more prevalent, increasing to
25% and 23% respectively. The latter is
particularly interesting as it demonstrates
a greater willingness for creative
industries to consider tower space.

54 55

Contacts

Jennet Siebrits
Head of Residential Research
Senior Director
+44 20 7182 2066
jennet.siebrits@cbre.com

Helen Gray
Residential Research
Associate Director
+44 20 7182 2068
helen.gray@cbre.com

Nick Axford
Global Head of Research
Executive Director
+44 20 7182 2876
nick.axford@cbre.com

Lisa Hollands
London Residential
Managing Director
+44 20 7420 2004
lisa.hollands@cbre.com

Mark Collins
London Residential
Chairman
+44 20 7182 2264
mark.collins2@cbre.com

Chris Lacey
London Residential
Executive Director
+44 20 7182 2318
chris.lacey@cbre.com

Sources

ABSA, AECOM 2013 Handbook, Australian Bureau of Statistics, Bank Of Japan, CSO,
CSO census 2011, Census, Central Statistic Department Hong Kong Government.
DAFT, Experian Business Strategy, Federal Institute for Research on Building, Federal
reserve Bank of Dallas, Federal Statistical Office of Germany, Japans Bureau of
Statistics, KEN Residential Market Report, Knight Frank, Lightstone, London First,
Molior, Nationwide Building Society, National Institute of Population and Social
Security Research, Numbeo.com, ONS, Oxford Economics, Reins, SA stats, SA
reserve Bank, Urban Affairs and Spatial Development, US Bureau of the Census, 2012
American Community Survey, BCG Global Wealth Market-Sizing Database, 2014.

Exchange rate

1: $1.69

Disclaimer 2014 CBRE

CBRE Limited confirms that information contained herein, including projections,


has been obtained from sources believed to be reliable. While we do not doubt
their accuracy, we have not verified them and make no guarantee, warranty or
representation about them. It is your responsibility to confirm independently their
accuracy and completeness. This information is presented exclusively for use by
CBRE clients and professionals and all rights to the material are reserved and
cannot be reproduced without prior written permission of CBRE.

2014 CBRE Ltd.

You might also like

pFad - Phonifier reborn

Pfad - The Proxy pFad of © 2024 Garber Painting. All rights reserved.

Note: This service is not intended for secure transactions such as banking, social media, email, or purchasing. Use at your own risk. We assume no liability whatsoever for broken pages.


Alternative Proxies:

Alternative Proxy

pFad Proxy

pFad v3 Proxy

pFad v4 Proxy