savills 10 cities v5 - pdf...

I N S I GH T S| World Cities Review |

AUTUMN 2011

HONG KONGLONDONMOSCOWMUMBAINEW YORKPARISSINGAPORESHANGHAISYDNEYTOKYOWORLD

CLASSThe 10 citiesshaping globalreal estate

Savills 10 Cities V5.indd 1Savills 10 Cities V5.indd 1 31/8/11 00:48:3231/8/11 00:48:32

LONDONPOPULATION 7.5MAREA 607² MILESCOST OF BUYINGRANKING 2CAPITAL VALUE GROWTHDEC 05-DEC 10 27%DEC 10-JUL 11 4%

ILLU

STRATIO

NSADAM

POIN

TER

Welcome to Savills World Class index.Following the success of our Four GlobalCities Review in the Spring, we are nowreporting on 10 cities that all compete forreal estate investment on the world stage.These form our first World Class index ofresidential real estate pricemovements from2005.There are many cities on this planet

that claim global status. Some rank top interms of lifestyle, quality of life, places to dobusiness,taxhavens,cities of culture.Twentysix of the world’s cities are megacities, withpopulations of over 10 million people.

Although some of Savills World Classcities are megacities and most rank highlyon the plethora of global measures, their

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NEWYORKCITYPOPULATION 8.3MAREA 469² MILESCOST OF BUYINGRANKING 7CAPITAL VALUE GROWTHDEC 05-DEC 10 10%DEC 10-JUL 11 -2% PARIS

POPULATION 6.6MAREA 294² MILESCOST OF BUYINGRANKING 5CAPITAL VALUE GROWTHDEC 05-DEC 10 35%DEC 10-JUL 11 10%

7

5

2

EMPIRESTATEBUILDING

EIFFELTOWER

BIGBEN

ST BASIL’SCATHEDRAL

GATEWAYOF INDIA

ORIENTALPEARLTOWER

MARINABAY SANDS

SYDNEYOPERAHOUSE

BANKOF CHINA

ASAKUSAKANNONTEMPLE

KEY

1 10 COST OF BUYINGRANKING–


MOSCOWPOPULATION 10.5MAREA 417² MILESCOST OF BUYINGRANKING 9CAPITAL VALUE GROWTHDEC 05-DEC 10 84%DEC 10-JUL 11 6%

HONG KONGPOPULATION 7.1MAREA 426² MILESCOST OF BUYINGRANKING 1CAPITAL VALUE GROWTHDEC 05-DEC 10 79%DEC 10-JUL 11 11%

WORLD CITIES REVIEW

key qualification is an active and growingworldwide market in residential real estate.Our cities all have sizeable non-domesticsales and lettings markets and growinginterest in them fromoverseas investors andoccupants.They are cities that often featureas relocation and expansion targets on thelists of international companies.

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SHANGHAIPOPULATION 22.5MAREA 1125² MILESCOST OF BUYINGRANKING 6CAPITAL VALUE GROWTHDEC 05-DEC 10 136%DEC 10-JUL 11 3%

TOKYOPOPULATION 13.0MAREA 240² MILESCOST OF BUYINGRANKING 3CAPITAL VALUE GROWTHDEC 05-DEC 10 49%DEC 10-JUL 11 -3%

SYDNEYPOPULATION 4.6MAREA 810² MILESCOST OF BUYINGRANKING 8CAPITAL VALUE GROWTHDEC 05-DEC 10 21%DEC 10-JUL 11 5%

MUMBAIPOPULATION 20.5MAREA 239² MILESCOST OF BUYINGRANKING 10CAPITAL VALUE GROWTHDEC 05-DEC 10 138%DEC 10-JUL 11 7%

10

9

SINGAPOREPOPULATION 3.9MAREA 273² MILESCOST OF BUYINGRANKING 4CAPITAL VALUE GROWTHDEC 05-DEC 10 92%DEC 10-JUL 11 16%

4

6

3

1

8


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T here is a difficulty in measuringresidential real estate acrosscontinents because the way

people live and what they expect differsgreatly – so too does the size and style oftheir homes. Even the way the size of thehome is measured differs from country tocountry. (We have standardised allmeasurements here to GIA: GrossInternal Area).This, in itself gives some interesting

results: a CEO in Sydney, Australia, mightexpect to occupy a large house totallingover 10,000 sq ft for example, but thesame executive in Moscow would morelikely find themselves in an apartment of

HOW THE TOP 10 WORLD PLAYERS COMPARETHE PERFORMANCE AND FUTURE PROSPECTS OF OUR WORLD CLASS CITIES

2 1

1000

0

2000

4000

6000

8000

10000

12000

1500

2000

2500

3000

SYDNEY

NEW YORK

SHANGHAI

LONDON

SINGAPORE

PARIS

MUMBAI

HONGKONG

TOKYO

MOSCOW

600

900

1200

1500

just 1,800 sq ft (although the Moscowexecutive would also likely have a large‘dacha’ or villa, in the nearby countrysidefor the weekends).We have also measuredany second homes that people are likely tooccupy as well.The international stereotypes of

residential accommodation in differentlocations are not always accurate. Parisiandwellings are among the smallest whileShanghai residents enjoy some of thebiggest, for example.Savills World Class index overcomes

the differences between buildings bymeasuring the cost of housing an identicalgroup of people in different countries.

SAVILLS EXECUTIVE UNIT (SEU)By comparing a group of real people, ourcost comparison of residential real estatehas a ‘real world’ relocation story at itsheart.We take a typical ‘executive unit’, agroup of people that might start up orexpand a global business in any country,and then compare the residentialaccommodation that they would be likelyto inhabit in each of the world cities.The people who make up Savills

Executive Unit (SEU) include one middleaged ex-pat CEO, one senior ex-patdirector, a locally employed director andfour locally-employed administrative staff.They each live in different types of

● CEO PROPERTY SIZE RANK● AVERAGE SQ FT GIA* PER CEO HOUSEHOLD

RATIO OF SIZE OF THE CEO PROPERTY COMPAREDTO THE AVERAGE NON-CEO PROPERTY

● SEU PROPERTY SIZE RANK● AVERAGE SQ FT GIA* PER SEU HOUSEHOLD

● NON-CEO PROPERTY SIZE RANK● AVERAGE SQ FT GIA* PER NON-CEO HOUSEHOLD

ALL IN THE NUMBERSCOMPARING WORLDWIDE PROPERTY SIZES

6710849351210987654321

1 6 2 5 3 8 7 4 9 108

3 4 6 3 2

2 6 3 6

*GIA

(GROSS

INTERNALAREA)

SYDNEY

SHANGHAI

SINGAPORE

MUMBAI TOKYONEWYORK

LONDON

PARIS

HONGKONG

MOSCOW

SYDNEY

SYDNEY

SHANGHAI

SHANGHAI

SINGAPORE

SINGAPORE

MUMBAI

MUMBAI

TOKYO

TOKYO

NEWYORK

NEWYORK

LONDON

LONDON

PARIS

PARIS

HONGKONG

HONGKONG

MOSCOW

MOSCOW

WORLD CITIES REVIEW


WORLD CITIES REVIEW

- 05-SAVILLS.COM

❝By comparing the accommodation costs of SavillsExecutive Unit we can truly compare the cost of residential

real estate across some very different global cities❞

MIDDLEAGEDEX-PATCEO

LOCALLY EMPLOYED ADMIN STAFF

SENIOREX-PAT

DIRECTOR

LOCALLYEMPLOYEDDIRECTOR

SAVILLS EXECUTIVE UNIT(SEU) CONSISTS OF...

household, some with children, some withpartners and some without and eachmember of the group chooses differenttypes of locations and different types ofproperty in which to live.

It is by comparing the accommodationcosts of these people that we can trulycompare the cost of residential real estateacross some very different global cities.

WORLDCLASSPRICEMOVEMENTSThe value of all properties, owned by theSEU, in all cities, rose by 77% on averagebetween December 2005 and June 2011.Growth in the last six months was 6% andthe index is expected to continue rising tothe end of this year at a more subdued rate.

VALUE RANKINGSAfter five years of very high price growthHong Kong is now significantly moreexpensive than the other 10 citiesHong Kong is characterised by limited

land supply for expansion and pricegrowth that has been fuelled by overseascash (particularly from mainland China).It has seen government measures, whichhave started to cool the lower end of themarket but we still expect to see growth inthe remainder of 2011.The cities of London,Tokyo and Paris

cost very similar amounts, near to theWorld Class average, while Sydney andNew York look good value in the ‘oldworld’, rivalling Shanghai and Moscow incost terms. At the other end of the scale,Mumbai costs 43% less than the averageof all 10 cities to house the whole SEU– but it is growing very fast fromthis low base.

There have been big differences in theperformance of individual cities: Mumbaigrew by 154% over the last five and a halfyears, while New York is up only 7% overthe whole period.There was no uniformpattern to price movements – some citieslike London,Hong Kong and Mumbaisaw a 2007 peak, followed by a 2009trough and subsequent value rebound.Other cities have seen no trough, either,like Shanghai and Singapore growingsubstantially with only a minor slowdownin 2009, or, like Paris and Sydney, seeingmodest growth and a shallow trough onan upward-sloping plateau.

‘OLDWORLD’VERSUS ‘NEWWORLD’The biggest difference in performancecan be seen between what might be calledthe old economies of Tokyo, London,Paris, Sydney and New York (which grewon average by 32% since 2005) and thenew, or emerging, economies of Shanghai,Singapore, Hong Kong,Moscow andMumbai which grew, on average, by 123%over the same period.It becomes apparent that the debt-

induced crisis of 2008 was suffered mostby the ‘old world’ cities and not ‘newworld’ ones.The biggest ‘old world’ valuerebounds have been experienced in thosecities that are most open to ‘new world’

investment, most notably London,Sydney and Paris.Hong Kong is the most expensive city

in which to buy all the properties to housethe SEU. It is followed by London, withTokyo, Singapore and Paris close behind.

0

50

100

150

200

250

SYDNEY

SHANGHAI

SINGAPORE

MUMBAITOKYO

NEWYORKLONDON

PARIS

HONGKONG

MOSCOW

● GLOBAL ● NEW WORLD ● OLD WORLD

TOTAL INDEX MOVEMENTS

RELATIVE COSTOF BUYING

(AVERAGE = 100)

MUMBAI

SHANGHAI

SINGAPORE

HONK KONG

MOSCOW

PARIS

TOKYO

LONDON

SYDNEY

NEW YORK

154%143%123%98%94%49%44%32%

27%7%

PRICE GROWTHDEC 05 - JUN 11

100

150

200

250

JUN06

JUN07

JUN08

JUN09

JUN10

DEC05

DEC06

DEC07

DEC08

DEC09

DEC10

JUN11


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WORLD CITIES REVIEW

The total annual cost of renting allthe accommodation needed by theSEU for one year averages

£257,000 across all 10 cities, ranging from£366,000 in London to £115,000 inMumbai. For any relocating or expandingbusiness, these are sums worth noting inaddition to office costs; they will impact onany rental allowances and relocationallowances for ex-pat staff and willprobably have an impact on the paydemands of local staff too.London and Paris have the highest

rental levels of the 10World Class citiesand these are fuelled by domestic, as well ascorporate, demand as would-be purchasersare pushed into the rental sector due tocredit restrictions.Hong Kong,Tokyo andNew York are also high priced rental citiesand, in common with all of the top five, aredriven by ex-pat/corporate demand at thetop levels.

WORLDCLASS RENTMOVEMENTSRents have moved, on average, across allcities at a slower pace than capital values,suppressing yields.There is an ‘old world’/‘new world’ difference in the growth ofrents but it is not as pronounced as withcapital values.This highlights that strongcapital-growth-motivated investment isdriving capital values in the ‘new world’,meaning that yields are moving muchfaster in these cities. In consequence, itmight be said that there is a stronger casefor rental-return-motivated investment inthe cities of the ‘old world’.

THE RENTAL DIVIDENDEXPANDING OR RELOCATING? ACCURATE RENTAL COST RANKINGS ARE KEY

RENTAL YIELDAVERAGE

3.65.1LONDON AVERAGE MUMBAI

%5.1%5.1£115,000

£366,000

TOTAL ANNUAL COST OF SEU RENTAL ACCOMMODATION

%3.6%3.6 £257,000

THE RELATIVE COST OF RENTING

AVERAGE = 100

0

30

60

90

120

150

SYDNEY

SHANGHAI

SINGAPORE

MUMBAI

TOKYO

NEWYORK

LONDON

PARIS

HONGKONG

MOSCOW

● GLOBAL ● NEW WORLD ● OLD WORLD

COST OF RENTAL GROWTH INDEX

100

110

120

130

140

150

DEC05

JUN06

DEC06

DEC07

JUN07

JUN08

DEC08

JUN09

DEC09

DEC10

JUN10

JUN11

OLD WORLD NEW WORLD

NEW_Savills 10 Cities.indd 6NEW_Savills 10 Cities.indd 6 5/9/11 09:55:185/9/11 09:55:18

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WORLD CITIES REVIEW

£1,370

Hong Kong’s rise since 1997 tobecome a key global financialcentre, if not the key financial

centre in the region, has been meteoric.Occupier demand and buyer confidencein the city’s residential real estate hasbeen equal to it – so price growth has alsobeen spectacular, despite experiencing atemporary knock by the global bankingcrisis of 2008.While genuine occupier demand,

evidenced by rental increases, is strong,demand for the purchase of ‘trophyassets’ is stronger.There is huge demandfor investment properties from theChinese mainland, coupled withrestricted supply.Cash-rich buyers therefore continue

to buoy prime markets. Despiteattempts to introduce cooling measures,strong interest in traditional areas,means that luxury prices in Mid-Levels, Southside andThe Peakcontinued to outperform other markets.Overwhelming demand for property atthe very top of the marketis setting global records.The extreme scarcity of

prime houses onThe Peak isperhaps an exaggeratedcaricature of thefundamental problemaffecting all World Classcities; there are simply justnot enough of the mostdesirable properties to goround.Rents have not kept

pace with this capitalgrowth in Hong Kong soyields have come in –even thoughleasing supply islimited.

❝Hong Kong’sextreme scarcityof prime housesis an exaggeratedcaricature ofthe problemaffecting allWorld Classcities❞

HONG KONGDEMAND AT THE TOP OF THE HONG KONGMARKET IS SETTING RECORDS

AVERAGE

COSTRANKING

SEU RENTAL COST INRELATION TO THE WORLD

CLASS AVERAGEAVERAGERENTAL YIELD

TOTAL SQ FT ● £ PER SQ FT

+24%

79% 11%

3.1%

3.1%

AVERAGE

SAVILLS EXCUTIVEUNIT (SEU)

SEU CAPITAL COST INRELATION TO THE WORLD

CLASS AVERAGE

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL

SEU RENTAL

SEU CAPITAL 1COST RANKING

AVERAGE CAPITALGROWTH

SEU AVERAGE...

LONDON

3

HONG KONG

1,090SQ FT

HONG KONGKEY FACTS

CHINA

+107%


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WORLD CITIES REVIEW

A lthough nolonger themost expensive

bricks and mortar in theworld, London propertyis still highly valued.The purchase of aLondon house or flat isviewed by many globalplayers as a safe store ofwealth. Showing lowergrowth but also muchless volatility than manyof its ‘new world’counterparts, thereappears to be somefoundation for this viewof London.Across the city’s

prime areas,international buyersconstitute 40% of themarket by value. Evenin the suburbs, Greater London is acosmopolitan city.As an established global city and major

financial centre, London attractsbusinesses and residents from every partof the world as well as a strong investormarket, currently buoyed by sterling’sweak exchange rate.Demand for rental property is strong,

and is fuelling rent rises. Both corporatedemand (which has been growing witheconomic recovery) in the upper tiers ofthe rental sector and domestic demandfrom would-be purchasers, unable toobtain credit, has been encouraging rentrises.This is a common story in thedebt-reliant western world.A steady inflow of overseas equity

(which we estimated last year to total£3.7 billion) has fuelled price rises in theLondon market and seen it substantiallyoutperform the rest of the UK. The valueof the executive unit accommodation isnear its former peak but we do expect thatgrowth will ease over the next year or so.

LONDONA LONDON PROPERTY IS STILL VIEWED BY MANYAS SAFE STORE OF WEALTH

AVERAGE

❝Londonattracts residentsand businessesfrom every partof the world,plus the weakexchange ratebuoys a strong

investormarket❞

COSTRANKING




+42%

27% 4%

£740

5.1%

AVERAGE



CLASS AVERAGE

+27%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL



SEU AVERAGE...

LONDON

1

1,160SQ FT

LONDONKEY FACTS

UK


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WORLD CITIES REVIEW

Tokyo residential real estate isperhaps one of the most differentof theWorld City markets in that

it is land that is valued, not the building.Tokyo’s dwellings are similar to a new carin that the value will depreciate almost assoon as it is built. Housing is assumed tohave a limited lifespan and generallyreplaced after 20 to 40 years.After a decade-long housing slump,

steady price appreciation was seen from themid-2000s until the financial crisis of2008, which saw prices fall back again.Values picked up in late 2009, but therecent earthquake cooled demand,particularly in the luxury market, althoughthe mid-market is said to be stable.Although rents have also declined since

the mid-1990s, property prices have fallenfaster, pushing out yields.This shouldprovide a buying opportunity for Japan’sReal Estate Investment Trusts ( JREITs).They were particularly big investors

between 2005 and 2007, until the onset ofthe financial crisis. Their renewed interestin high rental income could cause yields toharden again.The types of properties rented are very

different to the types of those for sale.Rental properties are purpose-built, locatedin and around the central business districts,targeted at employees of those areas, andcommand the higher prices. For purchase,inhabitants are more likely to choosedetached houses in the suburbs. Adminstaff will still live in the city centre, but invery small apartments or commute fromcheaper accommodation in one of many‘sleeper cities’.

TOKYOVALUING LAND OVER BUILDINGS MAKESTOKYO A UNIQUE MARKET

-3%

AVERAGE

COSTRANKING




+23%

49%

£830

4.2%

AVERAGE



CLASS AVERAGE

+12%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL



SEU AVERAGE...

LONDON

4

TOKYOKEY FACTS

TOKYO

1,330SQ FT

JAPAN

❝AlthoughTokyo’s rentshave also

declined sincethe mid-1990s,property priceshave fallen

faster, pushingout yields❞


- 10 -SAVILLS.COM

WORLD CITIES REVIEW

❝The rises havebeen fuelled by astrong economy,

increasinginternationalpurchasers,

restricted supplyand extremelylimited stock❞

SINGAPORETHE CITY WITH THE WORLD’S HIGHESTCONCENTRATION OF MILLIONAIRES

W ith annualised growth inresidential prices currentlyrunning at 16%,Singapore is a

‘new world’market writ large. Propertyprices have boomed since the economyrebounded in 2009.The average price rise ofproperties in the executive unit was 123%between Dec 05 and Jun 11.The city state’s open door policy

towards top end foreign economiccontributors, who traditionally gravitatetowards prime districts, means rentaldemand is high. Investor demand is alsostrong because Singapore has the highestconcentration of millionaire householdsin the world (16% with $1 million plus),and their capacity to buy residentialproperty is obviously high.As foreigners without Permanent

Residency status are generally onlypermitted to purchase private apartmentsand condominiums, the weight of foreignmoney in this segment of the Singaporeresidential market has also buoyed bothprices and rentals.The rises have been fuelled by a strong

economy, ever increasing internationalpurchasers from a booming Asia region,coupled with tightly restricted landsupply and, at the very top of the market,extremely limited stock.This looks set to remain unalleviated

in the foreseeable future as new land fordevelopment is limited and price growthin the luxury homes market is likely tobe sustained.

AVERAGE

COSTRANKING




-2%

92% 16%

£590

4.1%

AVERAGE



CLASS AVERAGE

+10%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL



SEU AVERAGE...

6

1,610SQ FT SINGAPORE

SINGAPOREKEY FACTS


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WORLD CITIES REVIEW

A s an international, culturalcentre, Paris rivals London andis currently seeing almost as

much overseas investor activity. It isnevertheless a very different real estatemarket with a small and constrainedprime centre made up almost exclusivelyof apartments. Residential stock inprime central Paris is largely historic,with very few new developments andvery few houses.There is strong international demand

at the top end of the Paris market, andincreasing investment from BRICeconomies, particularly while the Euroremains weak. Against this, prices aredriving upwards on the back of theshortage of new supply.

Upward price movement continuedinto 2011, with sustained strong demandand few available properties. Positivegrowth in transaction volumes and pricesin 2011 has been largely in the rare newapartment segment.Price growth across the whole Ile de

France region is beingled by central Paris, inmuch the same way ascentral London isleading growth inGreater London andthe Home Counties.Also similar to

many World Classcities, Paris with itshistoric fabric andbounded by the innersuburbs has veryconstrained landsupply and expansionpotential. Like many‘old world’ cities itwill rely on theregeneration of oldindustrial anddeprived areas tocreate new 21stcentury livingquarters.

❝Thereis stronginternationaldemand at thetop end of theParis market and

investmentfrom BRICeconomies❞

PARISUPWARD PRICE MOVEMENT CONTINUED IN 2011WITH STRONG DEMAND

AVERAGE

COSTRANKING




+41%

35% 10%

£740

4.6%

AVERAGE



CLASS AVERAGE

+10%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL



SEU AVERAGE...

LONDON

2

PARIS1,120SQ FT

PARISKEY FACTS

FRANCE


WORLD CITIES REVIEW

Shanghai’s metro population is thelargest in China, described as the‘showpiece’of the booming economy

of mainland China. Rapid re-developmentbegan in 1990s, and Shanghai is now anational financial centre and aspires to be aninternational financial centre by 2020.Shanghai ranks fifth in the latest edition ofthe Global Financial Centres Index.

The rapid economic growth has fuelled asubstantial rise in the housing market. Anumber of government measures, includingproperty taxes, have since been applied tocool the market and these appear to havehad an effect this year, particularly on thetop end of the market,where investoractivity is concentrated.Shanghai, like most other first and

second-tier cities in China, has announcedthat it plans to keep annual residential pricegrowth from exceeding annual growth inthe municipality’s GDP and disposableincome.This equates to roughly 8%.Although low in relation to recent growth,there is a large social housing programmeunderway,which will lower the averageprice (so Shanghai willhit the target) and valuesare not likely to falloff a cliff.Although prices have

risen steeply, rents havenot moved much (untilrecently) and yields areconsequently very low.Controls to cool prices

can have the side effectof stimulating rentalgrowth so, althoughShanghai’s rents have notmoved much yet, theprospects for growth aregood.Demand isgrowing from a coolingsales market andcorporate activity,including expats, plusinward migration andinvestment.

❝Controls tocool prices canhave the sideeffect of

stimulatingrental growth sothe prospectsfor growthlook good❞

SHANGHAIRAPID ECONOMIC GROWTH HAS FUELLEDGROWTH IN THE HOUSING MARKET

AVERAGE

COSTRANKING




-53%

136% 3%

£400

2.2%

AVERAGE



CLASS AVERAGE

-21%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL



SEU AVERAGE...

9

SHANGHAI

1,620SQ FT

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SHANGHAIKEY FACTS

CHINA


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WORLD CITIES REVIEW

N ew York at least is a part of theAmericas that can now call itself‘old world’. New York’s

residential real estate displays all thecharacteristics shown by the otherdebt-reliant North Atlantic economies,which suffered from the financial crisis of2008.New York has shown the leastgrowth of any of theWorld Class of10 – still standing at its 2005 level. As astable, high quality, established andcosmopolitan world financial and culturalcentre,New York is looking exceptionallygood value at present.New York, as a global city, has

outperformed the national average over thesame period.Once again, the global citycharacteristics of constrained space, littlenew development and burgeoning globaldemand has saved NY from the fate ofcontinued falls but, although internationalpurchasers are a growing presence, they arenot on the scale of some cities such asLondon.The Big Apple is a rental town,and largely an American one, although theVenezuelans, French,Germans and Chineseare all present in themarket and, at thesuper-high end,Russian buyers.Overseas buyers areoften looking forgood studentaccommodation fortheir offspring.With the economy

still struggling and noimpact from bonusesonWall Street thisyear, prospects forgrowth are still weakbut lengthened yieldsand longer termprospects offer someincentives.

❝The BigApple is arental town,

and it is largelyan American

one❞

NEW YORKTHE BIG APPLE HAS SHOWN THE LEAST GROWTHOF ANY OF THE TOP 10

AVERAGE

COSTRANKING




+21%

10%-2%

£520

6.2%

AVERAGE



CLASS AVERAGE

-31%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL



SEU AVERAGE...

LONDON

5

1,230SQ FT

NEW YORK KEY FACTS

NORTH AMERICA

NEW YORK


- 14 -SAVILLS.COM

WORLD CITIES REVIEW

S ydney has long had a high profile onthe global stage but might bedescribed as only recently bursting

forth into the World Class when it comesto residential real estate. It is a stable andhigh-quality ‘old world’ investment choicewith a well established luxury housingmarket within an emerging ‘NewWorld’region that is booming, although domesticaffordability pressures coupled with globaleconomic uncertainty has put pressure onprices in recent months.Our analysis of the executive unit

housing would seem to illustrate thatrecent stagnation is confined to the verytop and bottom of the market, varyingsuburb by suburb. Following fears thatoverseas buyers were contributing to ahousing bubble, restrictions were placedon the purchase of homes by foreigners,which have had some impact ontransactions.The average growth rates shown

therefore disguise some extremes aroundthe average, while an underlying housingshortage remains.The city’s undersupplyof accommodation and high in-migrationplus restrictions on new development(due to zoning and geography) are likelyto keep prices the highest of anyAustralian city.It would appear that Sydney is

beginning to display many of the commoncharacteristics of the World Class city –constrained land supply, increasingpressure from overseas investors and highdemand for prime accommodation – butit is unusual in offering very spaciousliving accommodation in relation to otherworld cities.

❝Sydney’sundersupply ofaccommodation,

high in-migration andrestrictions on

new developmentare likely to keepprices high❞

SYDNEYA STABLE INVESTMENT CHOICE WITH ANESTABLISHED HOUSING MARKET

£380

AVERAGE

COSTRANKING




+23%

21% 5%

4.7%

AVERAGE


CLASS AVERAGE

-33%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL




SEU AVERAGE...

LONDON

7

SYDNEY

2,590SQ FT

SYDNEYKEY FACTS

AUSTRALIA


- 15 -SAVILLS.COM

WORLD CITIES REVIEW

Moscow’s prime markets aremuch more reliant ondomestic buyers and are far

less cosmopolitan than London or Paris.Consequently, the performance of the

Russian domestic economy is tightlyinterwoven with the performance of itsresidential property.The markets were hitbadly in 2008 and 2009 by economicrecession as global demand for Russia’senergy resources plummeted and thedomestic economy faltered. Investment inMoscow’s residential real estate hasclosely followed the money being made inthe national economy, primarily in rawcommodities such as oil.As a market driven by domestic buyers,

Moscow’s residential real estate marketreflects the volatility of a fast growingemerging market but has also shown thegrowth to match.Moscow was the fastest growing of the

10 world cities between 2005 and 2008.Since global commodity prices haverallied, there has been renewed vigour inthe market and prices are rising again,albeit not at the same rate as pre 2007.Moscow currently stands fifth in terms ofgrowth levels over the whole period, justbelow Hong Kong.Like all of the World Class cities under

study,Moscow’s residential supplystruggles to keep pace with demand.Measures are being put in place to boosthousing delivery in an attempt to improveprice stability but how successful they willbe remains to be seen.

MOSCOWTHE FASTEST GROWING OF THE WORLDCITIES BETWEEN 2005-2008

AVERAGE

COSTRANKING


CLASS AVERAGEAVERAGE

RENTAL YIELD


-29%

84% 6%

£470

5.6%

AVERAGE



CLASS AVERAGE

-38%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL



SEU AVERAGE...

LONDON

8

MOSCOW1,050

SQ FT

MOSCOWKEY FACTS

❝Driven bydomestic buyers,

Moscow’sresidential realestate reflects thevolatility of afast growing,emergingmarket❞

RUSSIA


- 16 -SAVILLS.COM

WORLD CITIES REVIEW

Mumbai is the newest additionto the league of World Classcities and is perhaps feeling

uneasy in its role. Like all of the ‘newworld’ economies in this report it has seenhigh levels of (volatile) price growth,albeit off a low base, and currently standsthe highest performing residential realestate market since 2005.There is a widespread sense that the

extraordinary house price growth seen inrecent years, despite the 2008 downwardcorrection, is unsustainable.As is the way when cities come on to

the world stage and adjust from beingnational capital to World Class cities,house prices in Mumbai have becomeunaffordable for many ordinary people.The pressures of growth and demandimpinge on Mumbai in much the sameway as they do on Hong Kong andSingapore.Mumbai is physicallyconstrained by being on a peninsulawhere significant infrastructureinvestment is required for the city toexpand.There is widespread feeling in thecity that Mumbai’s housing market is abubble waiting to burst, but whether thisis the case, or whether it is entering a newglobal league of internationally pricedcities, remains to be seen.This basic pressure on space has pushed

up the cost of accommodation foreveryone.Mumbai has seen spectaculargrowth in rents, up 69% over five years,but capital values grew 138% over thesame period, suppressing yields.

❝There is awidespreadfeeling in the

city thatMumbai’s

housing marketis in a bubblewaiting toburst❞

MUMBAITHE NEWEST ADDITION TO THE LEAGUE OFWORLD CLASS CITIES

AVERAGE

COSTRANKING




-55%

138% 7%

£320

3.1%

AVERAGE


CLASS AVERAGE

-43%

1.610

DEC 2005 -DEC 2010

DEC 2010 -JUN 2011

SEU RENTAL




SEU AVERAGE...

LONDON

10

MUMBAI1,450SQ FT

MUMBAIKEY FACTS

INDIA


- 17 -SAVILLS.COM

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

SEUAVERAGE

WORLD CITIES REVIEW

World Class cities not only attractinternational business peoplebut are also the haunt of the

super-wealthy. Global billionaires who canmake any country their home, and oftenhave several different residences across theglobe, are important inward investors inresidential real estate.It is interesting that, in the cities where

average dwelling sizes are among the smallest(e.g.Paris andTokyo) billionaires will occupyamongst the largest spaces of any city.Theyare buying what is most rare.InMoscow,where the billionaire’s city

dwelling is a relatively modest 4,600 sq ft,this is compensated by an enormous 21,500sq ft mansion in the nearby countryside.

VALUERANKINGInHong Kong, the rarest commodity on theisland is houses onThe Peak, and Southside.Although they rank among the smallestWorld Class billionaire properties (at around5,200 sq ft), each of those square feet is themost expensive in the world.Tokyo is thenext most expensive,due to exceptionallyhigh land values in centralTokyo, although itis not a market known for internationalbillionaires (most would be Japanese).Billionaire’s properties tell a different story

to the executive unit.The ultra prime,billionaires markets in all cities out-performedduring the boom of 2007 and have alsoout-performed the SEU in the six months toJune 2011.This reflects the rate at which newbillionaires have been created across the globeand the rate at which they have invested inglobal real estate – in both emerged ‘newworld’cities and in established ‘old world’oneslike London,Paris andNewYork.

PROSPECTSFORFUTURE INVESTMENTThese established western markets haveseen steady growth but not the same volatilityas cities in the ‘new world’,making themattractive ‘safe havens’ for billionaires’wealth.We anticipate that Sydney, for example,hasthis potential in the Pacific region.

THE INTERNATIONAL SUPER-WEALTHYTHE WORLD CLASS BILLIONAIRE HOMES MARKET IS PERFORMING WELL

PARIS LONDON MOSCOW NEW YORK

HONG KONG TOKYO

SHANGHAI SINGAPORE MUMBAI SYDNEY

49% 23% 38% 3% 110% 2% 26% 0%

83% 10% 11%-2%

32% 3% 144% 16% 138% 7% 21% 40%

CAPITAL GROWTH OFBILLIONAIRE PROPERTY

● DEC 05 - DEC 10● DEC 10 - JUL 11

BILLIONAIRE VSEXECUTIVE UNIT

● BILLIONAIRES● SEU

£ PER SQ FT FORBILLIONAIRE PROPERTY

AVERAGE PROPERTY SIZE● SEU SIZE RATIO

COMPARED TO BILLIONAIRE

7 x

x

x

x

x

x

x

x

x

x

12

8

10

7

5

5

3

5

4

SYDNEY

TOKYO

SINGAPORE

PARIS

LONDON

MUMBAI

NEW YORK

SHANGHAI

HONG KONG

MOSCOW

19,380 SQ FT

16,010 SQ FT

12,300 SQ FT

10,760 SQ FT

7,860 SQ FT

6,790 SQ FT

6,500 SQ FT

5,380 SQ FT

5,200 SQ FT

4,630 SQ FT

It is likely that theWorld Class billionairehomes market will continue to out-performother markets for as long as the boom inglobal commodities and other marketscontinues and helps create new billionaires.There are already signs that a ‘wall of money’from this sector is waiting to get out ofChina so currency export restrictions are akey indicator for investors to watch there.Continuing political upheaval,war and

civil unrest in various other parts of theworld,will ensure that there is continueddemand from the international elite for safehavens inWorld Class cities.Unfortunately,this demand is assured for the foreseeablefuture.We increasingly expect that some ofthis demand will find its way to ‘new world’cities as well as the ‘old’ in future.

6,7005,1903,2703,0902,5202,2701,3201,000710590

HONG KONG

TOKYO

PARIS

LONDON

MOSCOW

NEW YORK

SHANGHAI

SINGAPORE

MUMBAI

SYDNEY

GLOBAL BILLIONAIRES

DEC05

JUN07

DEC08

JUN10

JUN06

DEC07

JUN09

DEC10

DEC06

JUN08

DEC09

JUN11

100

150

200


- 18 -SAVILLS.COM

WORLD CITIES REVIEW

WHEN THE CITY IS NOT ENOUGH...IN SOME CITIES LEISURE PROPERTIES ARE AN ESSENTIAL PART OF THE DEAL

0B ig cities have many attractions andmay be the sole place of residencefor half of the world’s population

but many wealthy city enclaves are stillempty at weekends.The tradition of spending the weekend

in the countryside is well-established inmany ‘old world’ cities like New York,Paris, London and Moscow. It is likelythat the CEO in our executive unit, whooccupies a small apartment in Paris orMoscow during the week, would have asecond home in the country.Those in Asian city states like Hong

Kong and Singapore are more likely totravel to neighbouring countries such asThailand,Malaysia and Indonesia toenjoy their second homes.For the Global Billionaire, meanwhile,

a leisure home forms an integral part ofoverall accommodation needs.We havemeasured the leisure accommodation ofboth the CEO and global billionairehouseholds in our World Class leisureproperties index.

This index is an eclectic mix of Thairesort villas, Russian dachas, Englishcountry houses and French Rivieraestates. Nevertheless, these residentialproperties can be seen as an importantcomponent of World Class city life.

UNDER PERFORMANCELeisure property has not seen the samelevel of performance as the main cityresidences. The leisure index increasedby only 33% between December 2005and June 2011, compared to 77% in thecity index over the same period. Thisreflects the singularity of the World Class

city and the way its residential marketshave little to do with the domesticeconomy. Second homes nestled in acity’s hinterland are more prone to thecondition of the domestic, and even therural economy, rather than the wealthbeing generated in the city state.It is not surprising then that World

Class leisure property experienced thegreatest growth during the globaleconomic boom period in the years upto the end of 2007 but, as domesticeconomies suffered more in the globalrecession of 2008, leisure properties fellmore – averaging -12% compared to -6%in the city. Leisure property is adiscretionary purchase and was one ofthe first luxuries to go in the downturn.Some of the countries of South East

Asia where leisure properties are situatedhave not seen the same levels of valuegrowth, hence the World Class leisureindex has not received the same boost asthe cities index. It has yet to return to its2007 peak.

❝Leisure propertyis a discretionarypurchase and wasone of the firstluxuries to go inthe downturn ❞

DEC05

JUN06

DEC06

JUN07

DEC07

JUN08

DEC08

JUN09

DEC09

JUN10

DEC10

JUN11

INDEX

HOME FROM HOMETHE GLOBAL LEISURE VALUES INDEX

120

140

160

180● CITY PROPERTY

● LEISURE PROPERTY


- 19 -savills.com

world cities review

insights is published on behalf of savills (l&P) ltd by Blue door Media ltd, bluedoor-media.co.uk. All information correct at time of going to press. All rights reserved. Articles may not be reproduced without written permission from savills (l&P) ltd. while every care is taken in compiling the content, neither the publisher nor savills (l&P) ltd assumes responsibility for effects arising from this publication. Property Misdescriptions Act savills recommends applicants discuss their interest in a property with the negotiator who can answer your specific questions and advise if it is under offer. This is important if you are contemplating travelling some distance. All descriptions, dimensions, references to condition and permissions for use and occupation, and other details are given without responsibility, and any intending purchasers or tenants should not rely on them as statements of fact, but must satisfy themselves by inspection of the property. Investment advice The information and opinions contained in this magazine do not constitute professional advice and should not be relied upon. specific advice relating to your individual circumstances should be obtained.

❝Hong Kong’s real estate is absorbing the

wealth of the asia Pacific region❞

❝Paris is rivalling london to attract

buyers who seek ‘old world’ stability❞

❝The world is using london as a safe

haven store of wealth❞

❝The creation of new wealth in china has made shanghai and

its real estate a showpiece of the

booming economy❞

❝closely linked to commodities markets, moscow’s real estate is a further play on the wealth created in the

cis’s main industries❞

❝High demand from overseas occupiers and

limited space keeps rents and capital

values high❞

❝ mumbai is making the transition from a major national city to fully-fledged global

city and its real estate prices reflect this❞

❝a strong investment proposition with all the advantages of an ‘old world’ city, in the booming asia Pacific region❞

❝ New York’s attractions, currently low prices and a favourable

exchange rate, mean the city is poised to attract

global HNWi❞

❝Tokyo has joined the ‘old world’ economies

and its land offers a stable investment

proposition❞

Hong kong

PAris

london

sHAngHAi

Moscow

singAPore

MUMBAi

sydney

new york

tokyo

yolande Barnessavills residential research

+44 (0) 20 7409 8899 [email protected]

simon smithsavills research & consultancy

+852 2842 4573 [email protected]

Paul tostevin [email protected] rebecca gill [email protected]

sophie chick [email protected]

elizabeth stribling stribling Associates


ExPErT commENTarYsavills agENTs arE aT THE HEarT of THE global ProPErTY marKET

Albert lau savills shanghai

+(8621) 6391 [email protected]

christopher Marriottsavills singapore+65 6415 3888

[email protected]

shayne Harrissavills sydney

+61 (0) 2 8215 8879 [email protected]

chris Mancinisavills tokyo

+81 (0) 3 5562 [email protected]

rEsEarcH coNTacTs

Jatin Patelsavills india


Alexander shatalovintermark savills

+7 (495) 775 22 40a.shatalov@

intermarksavills.ru

Jean claude caputoriviera estates

+33 (0) 493 874 115 jc.caputo@

riviera-estates.net

raymond lee savills Hong kong

+852 2842 [email protected]

Jonathan Hewlettsavills london

+44 (0) 20 7824 [email protected]

❝Residential markets inour World Class Citieshave more in commonwith each other than themainstream markets of thecountries in which they

operate❞


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