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EVOLVING MARKETS

What opportunities are there for real estate investors in

Boston, Frankfurt, Shanghai, and Madrid? Find out more

from our experts.

Has recent redevelopment in the city changed where investors are willing to acquire real estate in Boston? Which districts are up-and-coming?  

Jonathan Sullivan, Boston Research Manager, Newmark Knight Frank

Redevelopment activity in Boston, including within its vibrant Seaport District, has yielded a series of high-profile tenant relocations and robust investor activity. Amazon just became the Seaport’s newest big-name tenant, following the likes of GE and Reebok. GE is moving its headquarters from Fairfield, Connecticut, while Reebok is relocating from the Boston suburb of Canton. The district has become the place to be, driving construction activity as well as record-level pricing.

Obstacles to new development in Boston persist, notably site availability and permits, while new construction demand is arguably at an all-time high. The Seaport’s transformation has been critical in satisfying the demand for both new and trendy offices, and multi-family units.

Investors are also focusing on fringe locations with immediate connectivity to Boston and where infrastructure improvements are underway. Recently, Somerville agreed to redevelop 15.5  
acres in Union Square into a 2.3 million sq ft mixed-use project.

What impact will Brexit have on the Frankfurt investment market?  

Ralph Schonder FRICS, Managing Partner, Knight Frank Invest Germany

Germany’s attractiveness as a safe haven investment market has grown in the wake of the UK’s vote to leave the EU. The Brexit process has particular implications for Frankfurt, as Germany’s only skyscraper city is in a strong position to pick up demand from any financial sector occupiers deciding to relocate staff from London to the EU. To date, Brexit has had only a limited impact on the office take-up of Germany’s financial centre, but the first occupational deals that can be directly linked to Brexit are now beginning to trickle through.

Investors will be wary of Frankfurt’s vacancy rate, although that supply will allow the city to absorb a moderate level of new demand, even in medium-sized as well as large modern spaces, without significant upward pressure on rents. Investor interest will be even further stimulated, after a year-on-year growth rate for sales of more than 50% in H1 2017, if more Brexit-related leasing deals are signed; especially as the city currently offers higher-yielding opportunities than some of the other major German markets.

❝Government plans covering 2016- 2020 should increase the output of service industries to a level where they account for 70% of Shanghai’s GDP by 2020.❞

Is the transition of Shanghai’s economy from manufacturing to services creating new opportunities for real estate investors? 

Regina Yang, Head of Research & Consultancy - Shanghai, Knight Frank Greater China

Shanghai’s economy is now in the process of shifting away from manufacturing to services. Government plans covering 2016-2020 should increase the output of service industries to a level where they account for 70% of the city’s GDP by 2020.

Driven by this economic transition, and coupled with the proliferation of the mobile services, e-commerce has quickly become a key driver of the economy. The increase for online retail sales has in turn led to significant demand of warehouses. In recent years, investors have also shown great interest for this asset class. Domestic developers and financial institutions including Vanke, Ping’an, and Greenland have expanded their presence in warehouse market. Limited supply and higher returns have also propelled warehouses to become the third most sought-after asset class after office and physical retail. As the macro-environment continues to drive e-commerce this market segment will see further growth in the foreseeable future.

Which districts in Madrid and what kind of properties are in demand with investors?

Humphrey White, Managing Director,  Knight Frank Spain

Madrid has been a key target market for international property investors since the beginning of 2014. Commercial investment has been performing well since that year and, so far in 2017, office investment has already reached US$810 million, 5% above the same period last year. Although almost every quarter has been a record-breaker, property investors are still able to find opportunities in Madrid. Investors follow a research-driven rationale: net take-up has been increasing since Q3 2013 and the capital’s rent levels are still 28% below the peak, and significantly lower than other core markets in Europe.

Offices have been the preferred investment for many property investors: SOCIMIs (Spanish REITs), investment funds, family offices, PropCos and Sovereign wealth funds. Madrid’s CBD is the most popular district for office investment, followed by the Northern “Nudo Norte” submarket where many multinational firms have headquarters - this area is a natural extension of the CBD.

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