• Commercial property investment volume reaches record high in Greater China

    23 February 2018

    (22 February 2018, Hong Kong) Investment volume reached record high in 2017 totalling RMB273 billion, a 30% jump from 2016; Foreign property investment into Mainland China increased 84% y-o-y in 2017 by consideration, accounting for 20% of total investment and up from a 14% share in 2016, according to the latest Greater China Capital Markets Express report released by Cushman & Wakefield, a global leader in commercial real estate services.

    Investment in Shenzhen and Guangzhou tripled on the year compared to 2016, partly driven by anticipation of further development in the Greater Bay Area.

    Office assets remained the most favored asset class, accounting for 43% of total consideration in 2017, although falling short of the 10-year average share of 55% (2007–2016). Asset classes capturing the highest y-o-y increase by investment volume were: hotel/resort, serviced apartment, and business parks/R&D centers. China’s surging demand for serviced and/or long-term leasing apartments is attributable to recent policy guidance to drive development of lease-only residential housing. In addition, large shopping centers with recognizable branding and experienced asset management teams are being increasingly sought by investors.

    Total commercial property investment volume in Hong Kong increased 92% y-o-y in 2017, led by a 2.4-fold y-o-y advance in both the industrial and retail sectors. Mainland Chinese investors doubled investment volume in 2017 compared to 2016 – and almost all deals (99.5%) by PRC investors were office deals. On the other hand, local investors favored retail properties, accounting for 51% of investment volume across all sectors.

    The Taiwan market closed 2017 with NTD67.1 billion worth of property investment, up 7% y-o-y and ending a 5-year skid in which consideration had decreased 37% since 2012. Volume was buoyed by demand from traditional industries activating dormant assets and diversifying investment as well as domestic corporate expansions.

    Francis Li, International Director and Head of Investment & Advisory Services, Greater China at Cushman & Wakefield, said: “Driven by strong economic growth in the South China cities, particularly Shenzhen and Guangzhou, with recorded GDP growth rates of 8.8% and 7.3% in 2017, respectively – significantly above the national average of 6.9%, investment activity accelerated in Shenzhen and Guangzhou. With recent development of the Greater Bay Area initiatives, we except investment activity in South China – including Hong Kong, to remain robust in the years ahead.” 

    James Shepherd, Managing Director of Research, Greater China at Cushman & Wakefield, said: “In 2018, investors will likely continue to seek opportunities in urban renewal projects and in emerging markets to maximize capital appreciation. Value-added opportunities in core locations will likely be of particular favor, which can potentially achieve higher capital value after effective asset revitalization and management. In addition, emerging markets such as Lize and Tongzhou in/around Beijing; Hongqiao Transportation Hub and Qiantan in Shanghai; Pazhou in Guangzhou or Qianhai in Shenzhen all demonstrate great potential for future capital appreciation.”

     

                     

    In the report, Cushman & Wakefield provides insights on the latest market trends and hot topics such as:

    New Retail Era: retail malls still in demand despite rise of E-commerce: 2017 is regarded by some as the beginning of the “New Retail Era” – a stage at which e-commerce and physical shops are no longer water and fire, but join hands to make a bigger, more appetizing pie of omnichannel retail. Reflecting the new era in retail, this past year, Jack Ma pointed out that pure e-commerce will soon vanish, and increased the exposure of his e-commerce giant, Alibaba, to the offline world with collaboration with bricks-and-mortar retailers – including Intime, Bailian and Sun Art Retail Groups – to work together in terms of data sharing, click-and-collect and home delivery services.

    Strong demand for large portfolio: Those with larger asset management capacity, larger leasing teams (put simply those with more malls already under ownership/under management) have typically prevailed. Leaping across sectors but headline grabbing transactions in 2017, like the transfer of ownership of GLP worth US$11.6 billion (HK$90.76 billion) to China Vanke, Chinese fund Hillhouse Capital and others, may also illustrate the point that scale is being rewarded.

    Tongzhou – Beijing’s future municipal administrative sub-center: In April 2015, the Political Bureau of CPC Central Committee approved an historic plan to develop Tongzhou District into Beijing’s municipal administrative sub-center. In May 2016, the CPC reaffirmed Tongzhou’s important role as it was then designated to support development of Xiongan New Area, a new urban area about 110 km south of Beijing that is one of three key national development strategies discussed in China’s 13th Five-Year Plan.

    Growing investment in China’s long-term leasing apartment market: China’s 13th Five-Year Plan

    included a critical guiding principle regarding the country’s rental housing market, as the central government stresses that “lease and purchase are equally important”. Following this, an array of players from inside and outside the real estate industry entered the country’s long-term leasing apartment market.

     

    In addition, the report identifies key investment themes in China’s major cities:

    Beijing: The declining availability of developable land parcels in central locations of the city, coupled with rising costs of acquiring and developing that land, has prompted investors to increasingly target existing projects for purposes of renovation or upgrades to those assets to achieve potentially higher cap rates and/or asset values.

    Shanghai: Reflecting the positive sentiment investors have for Shanghai’s emerging suburban commercial hubs, a good number of transactions were recorded in decentralized areas of the city in Q4, including transactions in the East and North Bund areas in Yangpu district and in Linkong in Changning district.

    Guangzhou: Retail properties took the largest share by asset class at 41% of consideration in 2017. Highlights included several large shopping malls changing hands, such as Metropolitan Plaza and Rock Square, in addition to a number of retail shops and units within mixed-used projects. These are solid evidences to indicate a return of investor interest in retail properties, as driven by growing consumer demand for one-stop shopping and leisure experiences.

    Shenzhen: Domestic investors dominated the market, accounting for 90% of deals completed

    in 2017. Real estate developers focused heavily on industrial property acquisitions, accounting for 60% of the deals completed. Two of the year’s notable industrial deals were Excellence Group’s acquisition of ECS EliteGroup factory in Bao’an Shajing and Centralcon’s purchase of Yongqin Toy factory in Bao’an Guanlan.

    Hong Kong: Mainland Chinese investors were especially active in the en-bloc office market and were the buyers in two of the largest transactions in 2017. In the city’s largest deal of the year, a PRC-led consortium acquired a 75% stake in The Center from CK Asset Holdings for HKD40.2 billion (HKD32,961 per sq ft), the largest ever office transaction in the city. The other involved LVGEM-China, a Shenzhen-based developer, which purchased 8 Bay East, an upcoming Grade A office project being developed by Wharf (Holdings) in Kowloon East, for HKD9 billion (HKD15,095 per sq ft).

    Taiwan: Industrial-office properties and industrial assets in well-developed industrial parks were the

    most favored asset classes for investment, with the sectors accounting for 50% of annual consideration. Nonetheless, due to reluctant sellers and prevailing low yields, which remained below the expectations of big-ticket investors, mostly insurance companies, no large deal over NTD10 billion was transacted in 2017.

     

    Click here to view the full report.

     

     

     

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