Foreign Real Estate Investment Returns as Overseas Capital Targets China

HONG KONG, CHINA -�Media OutReach -
29 October 2018 – According
to the latest Greater China Capital
Markets Express report of Cushman
& Wakefield, a leading global real estate services firm, commercial
property investment demand from foreign participants rebounded in Q3,
especially in Tier-1 cities despite an overall softening of
investment in mainland Chinese commercial property over the last 12 months.

 

The increased share of
foreign investment in China came amid a challenging lending environment for
domestic investors. Shanghai has been the primary target of foreign capital,
recording RMB23.5 billion in property investment over the first three quarters
of 2018, surging 83% y-o-y. Industrial properties in Hong Kong attracted
increased demand from investors given the city’s drive for industrial
revitalization. In Taipei, investment was led by office and industrial-office
(I/O) deals, particularly older office buildings in the core areas of the city
with stable income and redevelopment potential.

 

Francis Li, International Director and Head of Capital
Markets, Greater China at Cushman & Wakefield, said: “Due to the prevailing low
yields in China’s core/core plus asset categories, buyers continue to look for
value-added investments in Tier-1 cities. Such strategies include the
acquisition of underperforming assets for upgrade or conversion. Examples of
this might include retail to office uses (especially co-working) and Grade B
office to rental apartments. In addition, ongoing improvement in both intra-
and inter-city connectivity attracts more capital to target real estate assets
in emerging CBDs in Tier-1 cities and some leading Tier-2 cities.” 

 

James Shepherd, Managing Director of Research, Greater
China at Cushman & Wakefield, said: “Investment activity in Mainland China is
expected to pick up over the next 12 months. However, given the prevailing
tight lending situation, projected new office supply is likely to fall back,
while end-user demand remains strong. Overall office vacancy rates in China,
particularly in Tier-2 cities, have tightened and this seems set to continue
through 2019. For those investors with strong asset management capability and
access to debt, we forecast an increasingly attractive commercial real estate
investment environment for office blocks or development projects in peripheral
areas of Tier-1 cities or core areas of strong Tier-2 cities.”

 

Catherine Chen, Head of Forecasting & Capital
Markets Research, Greater China at Cushman & Wakefield, said:
“Government initiatives, including the Greater Bay Area, Belt & Road
and urban renewal schemes, are expected to continue to drive growth of
commercial real estate investments in China. In addition, strong expansion of
the services sector, driven by the rise of Chinese companies is forecast to
continue to support office occupier demand, providing promising investment
prospects for quality office assets in China’s core markets.”

 

The report provides
insights on the following hot topics:

 

Express Railway
Ushering in Growing Opportunities in Guangzhou, Shenzhen and Hong Kong: The opening of the
long-anticipated Express Rail Link in September marks an exciting milestone in
the ongoing development of the Greater Bay Area (GBA). Three locations are
expected to reap huge benefits in particular: the areas surrounding Shenzhen’s
Futian Station, Guangzhou South Railway Station and Hong Kong West Kowloon
Station.

 

Other Investment
Opportunities in the Greater Bay Area (GBA): From a regional perspective, each of the
cities under the GBA framework have their own strengths. For example, secondary
cities Foshan, Zhuhai, Dongguan and Zhongshan will become regional core cities,
while Huizhou, Zhaoqing and Jiangmen will likely become large logistics hubs
given their geographical advantages.

 

Asset Management for
Conversion Projects: As investors seek new ways to squeeze value from
China’s real estate market, property conversions are one attractive prospect. A
notable example of this is the hotel-to-office repurposing of the Shanghai JC
Mandarin Hotel into a modern Grade A office tower. With a program of extensive
works, the ongoing conversion involves significant design and structural
engineering, in addition to numerous governmental approvals.

 

In addition, the
report identifies key investment themes in Greater China’s core investment
markets:

 

Beijing: Beijing’s investment market witnessed a rebound in
Q3, following a cooling through the first half of 2018. A total of RMB11.9
billion worth of investment changed hands during the quarter, up 13% y-o-y.
E-commerce companies became increasingly active, as reflected by JD’s RMB2.0
billion acquisition of the 68,000-sq m Beijing Jade Hotel.

 

Shanghai: Shanghai’s investment market recorded 17 deals at a
combined consideration of RMB18.09 billion for the quarter. Activity by foreign
investors has surged amid the increasing challenges faced by domestic
investors, including strict deleveraging requirements and fewer funding
channels. Notable foreign investments included Brookfield’s purchase of Mall
Jinqiao and Mall Jiading for RMB1.38 billion and RMB560 million, respectively.

 

Guangzhou: In the first three quarters of 2018, Guangzhou’s
investment market recorded a total transaction volume of RMB12 billion, up 9.8%
compared to the same 9-month period last year. Office properties remained the
preferred asset class in Guangzhou. Notable transactions included a government
institution’s purchase of Building A2, Greenland Central Plaza for RMB1.2
billion.

 

Shenzhen: Shenzhen recorded RMB3.9 billion worth of investment
in Q3, amounting to RMB10.7 billion through the first three quarters of 2018.
Domestic owner-occupiers, traditionally one of the most active buyers of
Shenzhen office assets, have remained cautious this year given financial
tightening. The purchase of four floors in International Chamber of Commerce
Tower in Futian CBD by a Hong Kong investor marked the largest office
transaction in the submarket so far this year.

 

Hong Kong: Despite ongoing U.S.-China trade tensions,
investment activity in Hong Kong’s industrial market surged to HKD6.71 billion
in Q3, outpacing the five-year historical quarterly average investment level by
89%. Decreasing industrial inventory and the potential reactivation of the
government’s industrial revitalization scheme contributed to investors’ ongoing
interest in en-bloc industrial buildings.

 

Taiwan: Taiwan’s commercial property investment market
recorded NT$9.6 billion in transaction volume in Q3. Investment was led by
office and industrial-office (I/O) deals. Most office deals involved older
office buildings in the core areas of the city with stable income and
redevelopment potential.

 

Click here
to view the full report.

 

About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a
leading global real estate services firm that delivers exceptional value by
putting ideas into action for real estate occupiers and owners. Cushman &
Wakefield is among the largest real estate services firms with 48,000 employees
in approximately 400 offices and 70 countries. Across Greater China, there are
20 offices servicing the local market. The company won four of the top awards
in the Euromoney Survey 2017 & 2018 in the categories of Overall, Agency
Letting/Sales, Valuation and Research in China. In 2017, the firm had revenue
of $6.9 billion across core services of property, facilities and project
management, leasing, capital markets, advisory and other services. To learn
more, visit www.cushmanwakefield.com.hk or
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