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Overseas investors to look beyond global Super Cities

20 July 2017

Malaysia – The globalisation of real estate will accelerate from 2018, with more than 30 per cent of transactions likely to be cross-border, according to global real estate advisor Knight Frank in its inaugural Active Capital report, which examines capital flows into the world’s Super Cities1 and to what degree the markets are driven by overseas capital. 

 

New York attracted the most overseas capital in 2016, US$16.3 billion, but remained largely driven by domestic buyers, who accounted for 60 per cent of total investment. London is ranked second in terms of overseas in investment, and the US$15.9 billion of foreign capital represented 80% of total volumes, making it the Super City most driven by overseas capital. 

 

Elsewhere in Europe, Paris and Berlin attracted overseas capital totalling US$9.7 billion and US$6.8 billion respectively. In Berlin, this constituted 69% of total investment activity, whereas in Paris domestic buyers are more active, accounting for 61% of total transactions. 

 

In Asia Pacific, Shanghai, Sydney and Hong Kong also made it to the top 10 list of global cities attracting inbound capital from overseas investors. 

 

Top global cities by volume of inbound capital

Top 10 cities by volume of overseas investment in 2016

Total volume of overseas investment in 2016 (US$bn)

Share of overseas investment (%)

New York

16.3

40

Central London

15.9

80

Paris

9.7

39

Berlin

6.8

69

Shanghai

6.0

18

Dublin

5.9

83

Sydney

5.7

55

Los Angeles

5.0

21

Hong Kong

4.9

72

San Francisco

4.8

34

Source: Real Capital Analytics, Knight Frank Research

 

Knight Frank analyses the sources of cross-border capital, highlighting the varying attitudes of investors across different geographical regions.

According to RCA data, the rise of Asian investors as capital exporters has been clear trend; the data shows a 244% increase in Asian cross-border capital over the last ten years – the largest regional growth globally. Asian overseas investments amounted for US$67 billion in 2016, versus US$19 billion in 2007, which is recognised as the peak of the previous real estate cycle.

 

Mr Nicholas Holt, Asia Pacific Head of Research at Knight Frank, says, “While significant amounts of capital have been heading out of the region, we expect more intra-regional flows in the coming years as core Asian markets become deeper and more liquid – spurred by increased transparency and relative political stability. As the weight of Asian capital looking for real estate continues to grow, we also envisage that more secondary or emerging markets will begin to be targeted by the more opportunistic groups. 

 

The Super Cities have been and will continue to be the core focus for most institutional investors. For the investors who are less risk averse or opportunistic, we are gradually hearing more conversations around emerging markets, especially relating to those along the Belt and Road.” 

 

European investors, meanwhile, have not returned to the levels of overseas investment seen pre Global Financial Crisis. In 2007, European investors placed US$118 billion overseas, which plummeted to a low of US$22 billion in 2009, before recovering to US$78 billion in 2015, and US$64 billion last year. Similarly, UK investors are placing less capital overseas, accounting for US$16 billion over overseas investment in 2016 versus a 2007 high of US$61 billion.

 

 

Sources of global cross-border capital (US$ billions)

Source: Real Capital Analytics, Knight Frank Research (Active Capital Report, Page 10)

 

 

As a new global economic cycle begins, active capital flows are likely to change direction and emphasis.  Emerging markets are likely to attract more interest as mature locations see performance moderating and opportunities becoming harder to find. 

 

Also, investors who have been attracted to developed economies by the positive currency arbitrage or due to weak performance in their own markets are more likely to explore opportunities closer to home as domestic conditions improve and foreign exchange movements work against them. 

 

Nonetheless, whilst the weight of capital will shift depending on domestic markets and economic conditions, there will be other investors with the ability and the appetite to focus on the Super Cities.  Whatever the economic conditions, the Super Cities and other gateway locations will continue to attract significant capital.

 

Mr Neil Brookes, Asia Pacific Head of Capital Markets at Knight Frank, says, “While core assets in major gateway markets have been increasingly thinly traded, the volume of active capital means that there continues to be off-market and value-add opportunities that could meet many investors’ criteria. The US, Australia and the UK remain the top target markets of many Asian-based clients, although assets in mainland Europe and in certain prime Asian markets are likely to become increasingly in demand.” 

Mr James Buckley, Executive Director Capital Markets at Knight Frank Malaysia, says "since 2014, Malaysia has attracted overseas capital totalling US$2.6 billion with Singapore accounting for 43%, followed by Australia at 19% and China at 17%.  The volume of overseas investors investing in Malaysia has dropped significantly since 2016 and although the market fundamentals are healthy, they are being somewhat overshadowed by the domestic political situation. I expect the level of uncertainty to fall and sentiment to improve once the general election takes place. On a regional basis, Malaysian property offers incredible value.

In terms of Malaysian outbound capital, there has been a steady outflow of capital into overseas real estate with S$9.7 billion invested overseas over the same time period.  The key markets being Singapore (28%), United Kingdom (28%) and Australia (16%).  Malaysian are increasingly seeing the importance of diversifying their wealth to mitigate political, economic and currency movements."

ENDS

 

To download the report, please click: https://kfcontent.blob.core.windows.net/research/1298/documents/en/active-capital-the-report-2017-4803.pdf

To watch the report video, please click: http://bit.ly/KF_ActiveCapital

To read the blog, please click: http://www.knightfrank.com/blog/tag/active-capital-report-2017

 

For further information, please contact:
Mr Nicholas Holt, Asia-Pacific Head of Research
nicholas.holt@asia.knightfrank.com +86 10 6113 8030 @nholtKF

Ms Rachel Loke, Asia-Pacific Head of Marketing, Communications & Digital
rachel.loke@asia.knightfrank.com +65 6429 3587 @knightfrank

Ms Seline Soo, Marketing & Communications Manager, Knight Frank Malaysia

seline.soo@my.knightfrank.com +603 2289 9669 @KnightFrank_my

 

Notes to Editors

Knight Frank LLP is the leading independent global property consultancy. Headquartered in London, Knight Frank has more than 14,000 people operating from 413 offices across 60 countries. The Group advises clients ranging from individual owners and buyers to major developers, investors and corporate tenants. For further information about the Company, please visit knightfrank.com.

Knight Frank has a strong presence in Malaysia with its headquarters in Kuala Lumpur as well as branches in Penang, Johor and Kota Kinabalu. The company offers high-quality professional advice and solutions across a comprehensive portfolio of property services and is registered with the Board of Valuers, Appraisers and Estate Agents. The Company is licensed to undertake property, valuations / consultancy, estate agency and property management and is also on the panel of all leading banks and financial institutions. For further information about the Company, please visit www.knightfrank.com.my.