Real Estate

Opportunities in global listed property: Washington DC office space

By James Maydew
Head of Global Listed Real Estate Sydney, Australia

The rise of the big technology companies – Facebook, Apple, Amazon, Netflix and Google – have triggered paradigm shifts for not just the virtual world, but for real assets as well.

These massive technology companies have caused surges in property prices across the US. Amazon’s power in the real estate market was amply demonstrated recently when it decided not to open a second headquarters in Queens, New York.

Under a deal brokered between New York and Amazon, the city was to pay US$3 billion in incentives and Amazon would create 25,000 jobs in the borough. But the deal fell over triggering political and community cheering and jeering in equal parts.
One point that received less media coverage was that Amazon was only ever planning to locate part of its so-called second headquarters in New York; the rest is to be based in northern Virginia near Washington DC1.

So what happens to the value and availability of real estate when a tech giant moves in?
In Seattle, the spiritual home of US tech, around 2.8 million square feet of space is used by tech companies. Amazon was founded in Seattle, and now that city doesn’t have enough space for the tech giant. Amazon has forecast it needs around 4.1 million square feet of space across the US. That’s a further investment of about US$2.5 billion in property by the company, and an estimated US$1.8 billion in additional spending in infrastructure and education investment by government2.
 

Washington office space
Source: JBGS, AMP Capital, January 2019 Chart: Eastdil, December 2018

And it’s not just Amazon. The satellite companies that have moved into the Amazon orbit all need space and infrastructure too.

Estimates suggest that from 2010 to 2018, Amazon grew from about 6,000 to 45,000 employees3. But Seattle grew by 169,000 jobs above what would be implied by the city’s historical growth rate net of Amazon.

Rental growth rates are also significantly higher in tech cities4. In Seattle, the Bay area of San Francisco and Austin, Texas, office rent growth since 2010 has been running at a five per cent plus rate - much higher than in the cities of New York and Chicago.
Washington DC, the home of at least part of Amazon’s second headquarters, hasn’t yet seen sharp office rent growth. In fact, in absolute terms it’s cheaper than many large technology and traditional markets.

Amazon’s presence and growth in the capital will create critical mass and a centre of gravity for the technology sector. It will usher in infrastructure projects that will have a lasting impact on the ability to sustain high levels of long-term growth and provides a real opportunity for savvy investors, who can gain access to stocks exposed to Washington DC office assets through the AMP Capital Global Property Securities Fund, which is an active ETF trading on the Australian Stock Exchange.

1 Amazon, Amazon selects New York City and Northern Virginia for new headquarters, November 2018.
2JBG Smith, Amazon HQ at National Landing update, December 2018.
3 BLS, Eastdil, December 2018
4 JLL Research, December 2018


 

 

This article has been prepared by AMP Capital Investors Ltd (ABN 59 001 777 591, AFSL 232497) (“AMP Capital”). BetaShares Capital Ltd (ACN 139 566 868, AFSL 341181 ("BetaShares") is the responsible entity and the issuer of units in the AMP CAPITAL GLOBAL PROPERTY SECURITIES FUND (UNHEDGED) (MANAGED FUND), (each a “Fund”). AMP Capital is the investment manager of the Funds and has been appointed by the responsible entity to provide investment management and associated services in respect of the Funds. Investors should consider the Product Disclosure Statement (PDS) for the relevant Fund before making any decision regarding the Fund. The PDS contains important information about investing in each Fund and it is important investors read the PDS before making a decision about whether to acquire, continue to hold or dispose of units in the Funds. Past performance is not a reliable indicator of future performance. Neither BetaShares, AMP Capital, nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this information. This information has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. Investors should, before making any investment decisions, consider the appropriateness of this information, and seek professional advice, having regard to their objectives, financial situation and needs.

 

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Important notes

While every care has been taken in the preparation of this article, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455)  (AMP Capital) makes no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This article has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this article, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This article is solely for the use of the party to whom it is provided and must not be provided to any other person or entity without the express written consent of AMP Capital.

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