In this post, we assess whether the superior capital growth of global cities was built on fundamental income growth or driven by the ability of these cities to attract a disproportionate share of capital flows. The poll showed that most respondents at the time favored a hybrid return-to-work approach (78%), while 17% of respondents expected to return to the office full time and only 5% favored a permanent work-from-home option. In August, we surveyed more than 400 real estate managers and investors who attended an MSCI webinar. Social distancing, remote working and changing mobility trends could affect growth in property income and by extension investment returns in these large, global cities. But COVID-19 may jeopardize the relative dominance of these power cities. These cities’ critical mass, connectivity and economic importance appeal to investors and occupiers alike, and the liquidity they offer differentiates them from secondary markets.

Institutional property investors turned to global gateway cities to diversify portfolios and generate capital growth in the years since the 2008 global financial crisis. As global gateway cities’ outperformance put downward pressure on their yield, we’ve seen a larger percentage of purchase expenditure flow to secondary office markets since 2017 - a trend that the COVID-19 pandemic might have accelerated.Investment performance within global cities also varied over the 10 years to June 2020. While some of the outperformance can be attributed to yield compression, these cities also delivered higher income growth.Pandemic-era trends may affect income growth and investment return for office property in global gateway cities, where office property long attracted more capital inflows and produced higher capital growth than secondary markets did.

Global cities index 2017