When it comes to investing directly in a city’s real estate, it’s often the same big hitters that top the lists time and time again for attracting the lion’s share of the money.
Yet there are some smaller cities that are punching above their weight when it comes to attracting money from both domestic and international investors, according to JLL’s Investment Intensity Index. It compares the volume of direct real estate investment in a city over a three-year period relative to the city’s current economic size.
And while some of the big names still appear in the top eight, there are a number of cities which are a little more off the beaten investment track. Nevertheless, these transparent, innovation-oriented cities are accounting for a growing share of global commercial real estate investment – and many of them are based in Europe.
“Significant capital continues to target real estate, and Europe’s New World Cities – mid-sized markets which specialise in high-tech and high-value activities – sit high on the wish lists of global investors,” says Jeremy Kelly, Director in Global Research, JLL. “The attractiveness of these smaller markets in transparent economies is evident, with the contribution of 40 New World Cities to global investment volumes rising from 12 percent in 2006 to 23 percent in 2016, overtaking the share of global investment into the ‘Big 6’ markets of New York, London, Paris, Tokyo, Hong Kong and Singapore.”
View the slideshow below to find out more about the top eight.
Small but highly sought after, the Norwegian capital hooks investors with its stable economy and low risk environment, supported by strong population growth. Although just under one million people live in Oslo, it has attracted more than $10 billion of direct real estate investment over the last three years. And it continues to pull in investment despite concerns over oil prices in recent years.
At the same time, Oslo continues to transform itself with waterfront projects such as the Bjorvika development, the new opera house and the forthcoming Munch Museum, which are transforming Oslo’s waterfront. However, the market is dominated by domestic players, and sees limited levels of cross-border investment compared to the other European cities on the list.
2. London, UK
Despite the uncertainty around Brexit, London remains the world’s second most popular investment destination both in absolute volumes and by intensity. Investors are drawn by its appeal as a global city; London is an established center for the finance, creative and technology industries, as well as for retail and tourism. The city’s office and hotel sector, in particular, stand out as targets for investment.
Investment reached more than $110 billion across the last three years – and the city also took the top spot for cross border investment intensity during the same period. Investors from Asia Pacific – notably China, Singapore and Hong Kong - have been particularly keen to pile into London property, boosted in recent months by the fall in the value of the pound.
The Bavarian state capital is Germany’s foremost investment destination, ahead of both Frankfurt and Berlin. It has established itself as a European hub for advanced manufacturing and R&D with companies including BMW and Siemens based in the city.
Investment volumes have increased every year since 2010, and now consistently reach over $5 billion every year; over the last three years it has attracted over $17.5 billion. 2016 in particular was a record year for investment in the city with 75 percent of this going into the office sector, while the hotels and logistics sectors have also seen strong investment.
The Scottish capital has emerged relatively unscathed from Brexit uncertainty so far – and even with the prospect of another independence referendum it continues to entice investors. Indeed, 2016 levels of investment were up on 2015.
Boosted by strong demand from the public sector and financial services sector – it is the UK’s second largest finance hub - and aided by its relatively small size, Edinburgh has seen strong investment across the office, retail and hotels sectors. It ranks second only to London in cross-border investment intensity.
As the world’s leading technology and innovation ecosystem, Silicon Valley has a relatively small residential population, but a large number of office workers and high level of business concentration. The high level of demand from technology firms in recent years has drawn investors to the office sector, while overall investment has topped $26 billion over the past three years.
Despite cooling in demand from occupiers during the second half of 2016, investors continue to flock to Silicon Valley with investment volumes having increased by almost 60 percent in the past two years.
Germany’s financial center is home to Deutsche Bank, Commerzbank & DZ Bank as well as the European Central Bank and the German Federal Bank. In 2016, strong investment figures are partly due to the sale of several iconic office buildings including the Adlerwerke campus. Indeed, four of 2016’s five biggest single asset transactions in Germany took place in Frankfurt. Meanwhile, leasing activity remains strong in the city with levels of take-up well above the five year average.
The growing popularity of German cities among investors meant the country came close to surpassing the UK as the world’s second largest investment market in 2016.
With its reputation for business friendliness and a favorable tax regime, the Irish capital has become home to a growing number of global firms looking for base for their European headquarters. With this, investor interest in the city has been mounting, and in 2016 there were five deals worth more than €100 million. Its Docklands area is now known as Silicon Docks after global tech firms moved into the area.
The presence of diverse, international companies has helped Dublin to become one of Europe’s strongest city economies over the past three years yet in recent months it has seen a range of political and economic disruptions. The Irish general election ended in a minority government while the Brexit process could impact the Irish economy.
When it comes to transparency and sustainability, Sydney ticks the right boxes for investors. Fuelled by a buoyant economy, the city’s office market has been moving rapidly in recent years and is expected to see among the world’s highest levels of rental and capital value growth in 2017.
While total investment volumes peaked in 2014, this is down to a lack of available, high quality product rather than a loss of investor interest. Indeed, Sydney has continued to see strong investment particularly in the logistics and office sectors. And there could well be more to come; large scale infrastructure programs are set to integrate the city more successfully with the suburbs and further revitalize the city center.