Published: Sep 28, 2014
Source: Saudi Gazette


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Rise of super cities to spur rental growth over 5 years

• Mideast occupies top 3 spots in Luxury Opportunity Index

• Spending on luxury goods, collectables continues to expand

Rising new technology industries and economic recovery are set to drive double digit rental growth in the 15 leading Global Cities over the next five years, according to a new report by Knight Frank.

With rents at the start of a new cycle, a new wave of property development is expected to accommodate future economic growth. Building will be focused on new districts, like New York’s Brooklyn, and Nine Elms in London. Skyscrapers will be the preferred means of maximizing sites to deliver large volumes of space.

James Roberts, Head of Commercial Research at Knight Frank, said: “Premium pricing for real estate is found in those cities with the most high value knowledge workers, which consequently attract the world’s leading corporations.  These are the ‘Global Cities’ and they are set to experience double digit rental growth in their respective office markets due to substantial demand and restricted supply of new commercial stock.

“The race for knowledge workers and the attractiveness of firms operating in these sectors is borne out by our prediction for office rental growth, with San Francisco’s rents leading the way with an increase of 36.2 per cent by 2019, driven by the effect of Silicon Valley.”

The renaissance of demand for Madrid’s office market will see it achieve substantial growth and join Singapore as the biggest movers in the top ten list of office markets globally over the next five years.

James Roberts, Head of Research at Knight Frank, said: “A new world of technology revolution with humans providing the creative impetus is generating a renaissance in the commercial property world.  Offices are thriving as ideal forum for idea generation while work and home are drawing closer so many of us want to live near the bright lights.”

“Firms today are scrambling to secure knowledge workers and the trend for a return to urban living has turned the global cities into talent magnets, and consequently multi-national corporations feel it is essential to locate within them.”

Restricted supply of new office stock in conjunction with this heightened demand for commercial space will see vacancy rates diminish in key cities by 2019 with the average vacancy rate dropping to just 6.3 percent in the top 10 cities globally.  Vacancy rates in Tokyo and London will drop to just 3.9 and 4.4 percent respectively. 

“Our data illustrates the opportunity for property investors and developers, who are in a position to exploit the growing trend for urban living across the globe,” explained James Roberts. “There was $202 billion of global commercial real estate investment in 2009 and we forecast this amount to increase to $606 billion in 2015, as just a taste of market activity to come.

“The knock on effect of the global cities growth will also see investors target new frontiers as they look to growth in emerging markets.  We expect to see Africa’s mature markets of Kenya, and Nairobi in particular, Botswana, South Africa and Nigeria to benefit.  Cape Town, Johannesburg and Lagos are all strategic hubs in the continent as is Dubai as it services a growing flow of African investment capital.” 

Moreover, spending on luxury goods and collectables continues to gather pace, according to the survey of the latest global trends and the new Luxury Opportunity Index.

Across the world UHNWI spending is predicted to increase in 2014, according to the results of The Wealth Report’s Attitudes Survey. Over a third of the survey’s respondents said they expect their clients’ spending on luxury goods to rise this year, while only 7 percent are predicting a fall in expenditure. European UHNWIs are likely to be the most cautious spenders – just over 30 percent of advisors expect their clients to spend more, compared with 41 percent in Latin America and 39 percent in Asia. The percentage of respondents expecting a dip in European UHNWI spending was also slightly higher than the global average. It is in Africa where we expect to see the greatest growth, with almost half of respondents anticipating higher levels of luxury purchasing activity. A study by consultant Bain & Co. points to an 11 percent increase in the level of spending on luxury goods there during 2013, while the new Luxury Opportunity Index, compiled by luxury market analyst Ledbury Research for The Wealth Report, highlights the continent’s growth potential. Of the top 10 locations identified in the index, five are in Africa.

However, it is the Middle East that occupies the top three spots in the index, which tracks those countries with the fastest-growing luxury spending potential in the short and medium term by measuring growth in four areas – number of luxury retail outlets, premium air travel traffic, wealth creation and economic growth. The US is the only developed nation to make it into the top 10, with Mexico the sole Latin American representative. Interestingly, despite the region’s economic growth, no Asian countries feature. “A lot of brands expanded too quickly in China,” said James Lawson, Director at Ledbury Research. “What they have now realized is that many Chinese consumers like to shop abroad. Prices are cheaper and there is more cachet attached to buying, say, a Gucci handbag in Milan than in Shanghai.”

According to the Boston Consultancy Group’s State of Luxury 2013 report, 25 percent of Chinese luxury spending occurs overseas, while the findings of the Hurun Report’s Chinese Luxury Consumer Survey indicates that 94 illion Chinese tourists were likely to travel outside the country in 2013 – an increase of 15 percent on 2012. Almost 65 percent of Chinese UHNWIs say travel is their preferred leisure activity, the survey adds.

“In absolute terms, Asia still has the largest proportion of the world’s luxury brand outlets (see figure, right), but growth is slowing. Many CEOs of global luxury brands are pointing to North America as the most important market for growth over the next five years,” said Lawson. Bain & Co. expected luxury spending to increase by 2.5 percent in China during 2013, compared with 4 percent in the US. However, as Mr Lawson points out, a significant proportion of luxury spending in the US, as in Europe, is now being driven by the growing number of Chinese tourists visiting the country. African UHNWIs are also helping to drive luxury markets abroad. “Speaking to luxury retailers, some have Nigerians as the third highest

non-EU spenders in London during 2012,” he said. Although Africa’s luxury industry is still only embryonic, with most major brands restricting themselves to South Africa for now, the sector is keeping a close eye on the continent’s increasing number of UHNWIs, said Lawson.

“Porsche is set to enter the Kenyan market this year and there is likely to be a 50 percent increase in millionaire numbers in Ghana by 2016. Although we certainly aren’t predicting that the major brands will open in places like Zimbabwe any time soon, there are positive signs emerging from the country.” Overall, Lawson forecast high single-digit growth in luxury spending around the world in 2014.

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