According to CBRE, Tokyo, New York and Los Angeles are the world's largest commercial real estate investment markets, with the global stock of investable commercial real estate assets standing at $27.5 trillion.
CBRE examined the relationship between city market size and capital flows into real estate for 122 cities around the world. The research found that there is a high correlation between the size of a city's real estate stock and the volume of investment into that city.
- Tokyo is the world's largest single market with a total value of investable real estate of $711 billion, followed by New York ($657 billion) and Los Angeles ($482 billion).
- Paris ($342 billion) and London ($334 billion) are the biggest European markets.
- The top 10 cities accounted for approximately $4.0 trillion-15% of global investable real estate stock.
- The largest five cities in the Americas (New York, Los Angeles, San Francisco, Chicago, Houston) represent $2 trillion of investable real estate; a figure that can be attributed to the free market nature of its economy and cities.
- Asia Pacific's five largest cities (Tokyo, Seoul, Osaka, Sydney, Melbourne) amount to $1.5 trillion, although it is worth noting that data was not available for all cities in the region, including China.
- The relatively lower total of $1 trillion in Europe's five largest cities (Paris, London, Madrid, Milan, Munich) is attributed to the influence of national boundaries, land use planning, and regional support programs.
The research identified 'outlier' cities that do not follow the general trend and attracted either more real estate investment than the market size would suggest or vice versa. Markets that attracted more investment, include relatively smaller U.S. cities such as Tampa, Richmond, Austin and Charleston, while in Europe this trend applied to regional UK cities such as Edinburgh, Sheffield and Cardiff, as well as Oslo, Düsseldorf and Tallinn.
CBRE also investigated the ratio between the market size and the real estate investment inflow to establish the market's liquidity. From cities with an average turnover of at least $10 billion, London, New York and Dallas mark the top three most liquid markets, with respectively 8.6%, 7.1% and 7.0% of stock traded on a yearly basis. San Francisco, Los Angeles, Washington, D.C., and Paris closely followed, all trading above 4.8%.
"The amount of stock available in each market is relevant to investors pursuing a global diversification strategy - a true market neutral portfolio needs to be weighted by city size. Most investors are not pursuing full global diversification, but many have a more tightly defined strategy such as 'core real estate in global gateway cities'. It is important for these investors to know the relative size of the key investment markets to ensure portfolio balance," said Chris Ludeman, global president, Capital Markets, CBRE.
