Survey: New Contender for Global CRE Rankings
Commercial real estate investment has stayed predictably strong in certain American markets, namely New York City with $9.9 billion worth of investment. But other U.S. cities are getting a run for their money by foreign cities that have surprisingly made the cut on a list of investment hotspots around the globe. A quarterly survey conducted by real estate consulting company Jones Lang LaSalle outlined the top 10 cities for real estate investment in the fourth quarter of 2013, with an until-now unlikely competitor: Moscow.
Moscow has debuted on the list with the largest amount of quarterly commercial real estate investment after it saw a total of $3 billion injected into properties in the last three months of 2012, the survey noted. The Russian capital was tied for eighth and ninth places with Washington, D.C., which saw the same volume of investment. While New York remained the top city on the list, the U.S. metropolis was closely followed by London, with $8.8 billion worth of investments. The quarterly ranking also includes Paris ($5.6 billion), Seoul ($4.7 billion), Seattle ($4 billion), Hong Kong ($3.2 billion), and Los Angeles, which was in 10th place, with $2.8 billion invested.
Among the transactions that contributed to new contender Moscow’s performance in the fourth quarter was the purchase of the White Square office complex by O1 Properties for $1 billion in December, in what became Russia’s largest ever office deal. Moscow accounted for over 90 percent of the total investment into commercial properties in Russia in 2012, according to the report.
Although a record for Russia, the $8.7 billion investment there is still “not impressive” when compared at the country level, Jones Lang LaSalle said. In 2012, the United Kingdom recorded $52 billion of investment into commercial properties, while Germany and France saw $31 billion and $21 billion, respectively. Russia might show even more modest results this year, with the overall investment into commercial real estate likely to slide to $7.5 billion, say commercial real estate experts.
Russian real estate experts predict that investors are likely to remain committed to the Russian market, with a growing number of them expected to come from abroad—but their interest could be at odds with the number of attractive options to invest in. Prime quality offices, for example, account for just 10 percent of the 2.5 million square meters of Class A properties currently available in Moscow. The amount of high-quality stock that a foreign institutional investor can really look at is extremely limited.
The youth of the domestic market for commercial real estate as compared to most developed countries is credited for the deficit of prime office investment properties. Construction of high-quality offices started only several years ago, making Moscow play catch up with London, New York, and Hong Kong for high-quality stock. On the bright side, the retail segment might be a potential driver for growth, since investors are likely to be attracted to high-quality shopping centers that will soon be completed there.
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