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THE BIG FOUR

Market experts on the ground address the big questions

facing London, Manhattan, San Francisco and Hong Kong.


❝Park Avenue had long represented the center of Manhattan’s office market, but a seismic western shift of capital has pushed the city’s core closer to the Hudson.❞

Mobirise

1 / LONDON


How has the move towards Brexit
impacted the London economy?



The London economy has performed better than anyone would have expected in the aftermath of the vote to leave the EU in June 2016. Firms like Apple, Deutsche Bank, and Wells Fargo have committed to new HQs in London, Amazon and Facebook are both recruiting here, and unemployment is at its lowest level for over 40 years. Overseas firms have seized on the fall in value for the pound to invest in London at a discount.

There has been huge variation in the reaction to Brexit between technology industries and the financial sector. Most tech firms quickly shrugged off Brexit and returned to expanding again soon after the June 2016 referendum. The financial sector remains cautious due to concerns over whether some operations may have to relocate to cities in the EU.

I believe the EU will be reluctant to see the flow of capital from London to European firms disrupted by bank relocations – which would also push up the cost of raising finance. I see financial market access being maintained in the long-term.



JAMES ROBERTS
Chief Economist
Knight Frank 


Mobirise

2 / MANHATTAN


How have major new development
projects in recent years reshaped the geography of Manhattan?


The rapid development of a cluster of office buildings within a dedicated area is not new to Manhattan. It happened in Rockefeller Center, Times Square and the original World Financial Center, to name just a few locations. Each new cluster has pushed the boundaries of Manhattan’s office market further west. Park Avenue had long represented the center of the market, but a western shift of capital has pushed the city’s core closer to the Hudson.

The addition of 18 million sq ft to the West Side, including 7.1 million sq ft leased or sold, has resulted in a significant number of employees from large, highly successful companies migrating to an area that has never been so populated. The notion that global financial institutions, media conglomerates and prominent law firms would anchor buildings along Tenth and Eleventh Avenues in Midtown was beyond far-fetched just a few years ago. New and fully amenitized assets have gained traction despite less-than-favorable locations. Changes in market dynamics have altered the commercial landscape, providing opportunities for tenants in more diverse locations.


JONATHAN MAZUR
Senior Managing Director National Research

Newmark Knight Frank

Mobirise

3 / SAN FRANCISCO


How do long-term San Francisco
tenants compete in this market?



Tech growth has profoundly affected both supply and rent levels, yet tech represents only 35% of the market. Traditional tenants with 10 year leases rolling in 2017 have net negative 6.3 million sq ft of space to choose from now. This is because the space has been leased by new tech companies that were not in existence ten years ago. New development - over 5.3 million sq ft of deliveries in the past decade, and another 6.4 million sq ft coming in the next three years - should help ease the crunch. However, more than half of the space underway is already pre-leased, so the impact of additional space will be limited.

Tenants are also facing asking rates that are double what they saw 10 years ago. As a result, established tenants are finding ways to downsize and become more efficient, whether by densifying occupancy or bifurcating and sending transferable jobs to nearby secondary markets like Oakland.

Renewals are another cost-saving option, and tenants often opt to exchange improvement packages for reductions in rent.


ANDREA ARATA
San Francisco Director of Research
Newmark Knight Frank


Mobirise

4 / HONG KONG


Why is so much investment capital
coming to the global real estate
market via Hong Kong?


The rise of Hong Kong on the global investment stage was driven by the need for Chinese firms to expand, diversify and seek greater value. Hong Kong has evolved in the last ten years from an entrepôt into a fully-fledged international financial centre for the region. This has enabled Chinese firms to raise capital here and launch their bids unimpeded by the capital outflow restrictions that apply on the mainland.

Hong Kong is also helped by its excellent connectivity within Asia Pacific. In addition, its sophisticated legal system, high market transparency and accumulated financial expertise have enabled the city to stand
out from other business centres on the mainland.

Not surprisingly, the city has been attracting strong occupier demand from mainland firms vying for top spots in the Hong Kong financial market. Nearly all the new leases in Q1 2017 were by mainland firms.
Hong Kong is evolving too as we can see from the development of new CBDs and new transport links.



DAVID JI
Head of Research & Consultancy
Knight Frank Greater China


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