Hong Kong: the year of political polarisation
Since Occupy Central in 2014, political discourse in Hong Kong has continued to worsen, particularly among the youth population. Sky-high property prices, lack of employment mobility, a widening wealth divide, and uncertainty over the rule of law heading towards 2047 (the end of the 50 years of “one country, two systems” constitutional principle), have elevated social and political tensions. According to a survey by independent think tank Civic Exchange, around 42% of Hong Kong residents want to leave the city, with 70% of the 1,500 surveyed saying that Hong Kong has become “worse” or “much worse” to live in. Most recently, the High Court has disbarred two pro-independence legislators from taking office – due to controversies over oath taking – further raising concerns over Hong Kong’s judicial independence. Societal polarisation is unlikely to ease anytime soon, particularly against the backdrop of 2017’s Chief Executive Election. Watch this space.
Washington DC: back to the future?
2017 may be a pivotal year for the Washington DC real estate market, which has
suffered through five years of federal government downsizing and spending cuts.
Previously, it had been a perennial outperformer, driven by steadily increasing
government spending and an affluent, highly-educated population, which bolstered
economic growth and real estate demand during national recessions. New
administrations have typically provided an economic and real estate market boost,
due to an influx of lobbyists, Political Action Committees (PACs), and the like. The
new administration should be no different, particularly since policies and priorities
are markedly different from those of the outgoing administration. With federal
government wages and spending accounting for close to 40% of local economic
activity, 2017 may establish the foundation for a healthy recovery of the market in
the post-election years.
San Francisco: frothy but sustainable
The San Francisco economy and real estate market head into 2017 as hiring and spending by local technology companies moderate from the breakneck pace of prior years. Similarly, national venture capital funding has slowed due to stretched valuations. However, the local economy and tech sector can withstand a period of flux, given the sizeable presence of the nation’s top tech companies. While office deliveries in 2017 have significant pre-leasing, vacancies are likely to rise modestly due to sub-lease space and areas being vacated by relocating tenants. Similarly, apartment vacancies will tick higher as 2017 deliveries face weaker demand. With San Francisco having some of the highest office and apartment rents in the country, tenant interest and activity in more affordable areas of the neighbouring Oakland metro area have increased, and could provide an effective arbitrage play.
London: the cycle is back!
So why London at a time when the UK faces major disruption from the Brexit process? Because we believe 2017 will be the year in which uncertainty in leasing and capital markets will provide investors with an opportunity to access enhanced office returns. Apart from its greater volatility, London has an attractive risk profile: a highly-transparent market with deeply-liquid capital markets and solid income security. So it’s hardly surprising it has long been the world’s largest cross-border investment market. Surveys have almost consistently shown London to be the number one choice for the location of financial firms. Even amid Brexit uncertainty, its critical mass will ensure it stays dominant and streets ahead of any other European contender. However, London is not just about financial strength; it hosts the highest concentration of business start-ups in Europe, and significantly appeals to entrepreneurs seeking to network and develop new ideas.
Berlin: the new hipster favourite
Berlin has long been a favourite of millennials and creatives, but until recently, the
economic heartbeat of the city was dominated by government activity. More recently,
Berlin has emerged as the place for technology companies as well as a favourite of
consultancies. The associated shift in occupier demand has underpinned the real
estate investment cycle. In 2016, Berlin was among the top cities in Europe for rental
growth with a record-low vacancy rate. Finding large vacant prime space in central
Berlin is a challenge for occupiers, with the Berlin economy developing strongly. Berlin
has long been a hidden champion and not “corporate” enough to attract companies.
Today, there is a resurgence of the city and this time it seems more sustainable than
the post-reunification boom of the German capital.