Global Investors Favor Usual Suspects

The flood gates are open for capital flowing into NYC and London, though other top-tier cities are seeing a bit of a drought.

Where does the big money go — regardless of point of origin, on a worldwide playing field — when it wants to buy commercial real estate? The same places it always has: New York and London. At least those were the top cities worldwide for commercial property investments, according to the latest data by Real Capital Analytics.

The total flow of capital into those markets skyrocketed during the first half of 2015 compared with a year earlier. Wise investment or herd mentality? That’s tough question, but it’s also useful to think of the cities in historical terms: London, the international financial nexus, a legacy of the world-spanning British Empire; and New York, financial hub of what’s still the largest national economy in the world by far. Both places have attracted deep-pocketed investors for centuries.

In any case, RCA reported that $36.8 billion in CRE traded in metro New York in the first half of this year, up some 59 percent year-over-year. For greater London, the total was was $29.7 billion, an increase of 48 percent compared with the H1 2014. Besides their status as financial capitals, the two megalopolises also happen to be in “save haven” countries, at least as understood by wealthy investors in less stable parts of the world. The cities furthermore have a post-recession track record of rental growth, and the thinking is that will likely continue.

Interestingly enough, investment in some other top 10 cities has dropped. Tokyo’s sales volume fell 21 percent in H1 2015 compared with last year, while Paris dropped off 34 percent, Hong Kong declined 26 percent, and Sydney fell 20 percent. On the other hand, a number of markets are growing in investment sales (all year-over-year comparisons for the first half): Los Angeles, up 25 percent to $16.9 billion; San Francisco, up 30 percent to $15.9 billion; and Chicago, up 94 percent. Atlanta, Boston, Dallas, Houston, Seattle and Washington DC also enjoyed double-digit increases.

Then there’s Florida. Miami’s been attracting Latin American capital since the days of Henry Flagler, but the post-recession years have seen an especially high volume. This is due to a confluence of rapid economic growth in certain Latin countries, such as Brazil, and political uncertainty in others, such as Venezuela. Also, in even more recent times, investors have returned to South Florida from the Northeastern US, Canada, the EU — and now investors from China are discovering a renewed interest in Florida commercial properties (to go along with an interest in residential properties). According to RCA, South Florida, mainly but not only Miami, experienced a rise in investment of 88 percent to $7.1 billion during the first half of the year, compared with 2014. Investment in Orlando properties was a whopping 280 percent higher in 1H 2015, at $3.8 billion, than it was during the first half of last year.