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Global Cities report reveals Sydney and Melbourne flying high

Global Cities report reveals Sydney and Melbourne flying high

Global property consultancy Knight Frank has launched its Global Cities: The 2017 Report, examining the market performance of 31 cities across the world in light of three major trends shaping the times:

Negative interest rates have reduced investors’ expectations on what constitutes an acceptable return, which is drawing capital towards real estate. Despite the volatile economic environment, the avalanche of technological innovation continues to drive demand for property on a global scale. Fast-growing cities are centre stage in the digital and creative revolutions, and in many of those at the forefront, supply is not keeping pace with demand for both commercial and residential real estate.

Of the cities analysed, 12 are in the Asia-Pacific region, which is continuing to grow in economic importance globally.

Sydney’s projected to see the strongest growth of 27.5 per cent and Singapore the weakest with a forecast rental decline of 14 per cent.

Shanghai (19.2 per cent), the only Chinese city on the top 10 chart, sits in the sixth position, a notch down from Melbourne (19.3 per cent).

Head of research and consulting for Australia Matt Whitby says: “Our prime office rental forecasts stretching to the end of 2019 offer an insight into how demand drivers will interact with supply dynamics over the coming cycle.

“Sydney, along with Melbourne, continues to see diversified demand drivers, as the Australian economy continues to show resilience despite the slowdown in demand for commodities; while Shanghai has boomed on the back of strong growth from technology related companies.

“In Sydney, off the back of tenant demand – which is double the long-term historical average – and falling vacancy rates, rents have risen sharply across the prime and secondary markets. This is accentuated in the secondary market, where large amounts of permanent withdrawals have occurred.

“As a consequence, annual gross effective rental growth of 16.6 per cent has occurred in the secondary market and 13 per cent in the prime market over the 12 months to July 2016.

“This relatively strong growth is expected to continue, with secondary and prime gross effective rental growth of 9.6 per cent per annum and 7.9 per cent per annum respectively to occur over the next two year,” he adds.

Prime office rents forecast (Q4 2015 to Q4 2019)

Ranking Global city % growth
1 Sydney 27.5
2 Berlin 25.0
3 Austin 24.9
4 Madrid 21.0
5 Melbourne 19.3
6 Shanghai 19.2
7 Seattle 17.0
8 Los Angeles 15.9
9 Dublin 15.5
10 Boston 11.1
11 Mumbai 11.1
12 Tokyo 10.3
13 Paris 10.0
14 Bangkok 8.3
15 London 7.1
16 Amsterdam 6.8
17 Miami 6.0
18 San Francisco 5.1
19 Washington, DC 5.0
20 Hong Kong 4.5
21 Seoul 4.3
22 Frankfurt 3.9
23 Chicago 2.9
24 Brisbane 2.7
25 Mexico City 0.6
26 Toronto -0.1
27 Kuala Lumpur -1.1
28 New York City -2.5
29 Beijing -4.4
30 Singapore -14.0
31 Bogota -17.3

Source: Knight Frank Research, Newmark Grubb Knight Frank Research, Sumitomo Mitsui Trust Research Institute

Examining the rental performance of commercial buildings over 30 storeys, the Skyscraper Index looks at the performance of skyscrapers in the six months to Q2 2016, and Asia-Pacific cities experienced the highest rental growth across the 21 global cities tracked.

Skyscrapers in Shanghai recorded the strongest rental growth in the first half of 2016, at 7.6 per cent, followed by Sydney (6.6 per cent).

Melbourne sits at eighth position, with 3 per cent growth over H1 2016.

According to Knight Frank’s head of office agency Australia, John Preece, at the mid-point of 2016, “the global skyscraper story really has an Asia-Pacific flavour, with the top four performing cities in terms of rental growth situated in this region”, with Shanghai’s skyscrapers seeing the strongest rental growth rates over the first six months of the year.

Offshore capital investment into Australia

Knight Frank’s head of institutional sales Australia, James Parry says the lower-for-longer interest rate environment in Sydney (and around the world) continues to accentuate the attractiveness of prime real estate in the world’s leading business hubs.

“It’s the dynamic cities attracting new sources of growth, including the wave of creative and technology industries that continue to be high on long-term investors’ wish lists,” he says.

knightfrankgraphic

“Offshore investment into Australia continues to increase. Money is flowing in particularly from all Asian countries, including new entrants from Japan.”

Globally, however, New York and London remain the largest markets for overseas capital by some way.

In relation to Australia’s office markets, Parry says rents are going through a period of dramatic growth in Sydney and Melbourne.

“With the lack of stock and continued strong demand, the stars are aligned for price growth,” he says.

“On a global scale, yields remain generous, so Australia’s a positive investment offering internationally with yields compressing. Even on an effective yield basis, it’s still very appealing as incentives are contracting.”

About API

Founded in 1997, API is Australia's highest-selling property magazine.

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