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$150 billion of investment allocated for China's commercial real estate market

Invest / Direct Property Funds

Australia

Aug 24 2017

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Michael Gerrity, World Property Journal

According to CBRE's Towards 2020: China Investment Strategy report, commercial property transactions in China will grow to RMB 260 billion ($39 billion USD) by 2020, a 45% increase from 2016.

Underlining the huge investment potential in the country's real estate market, institutional investors, real estate developers and other investors are set to contribute around RMB 1 trillion ($150 billion USD) to new commercial property investment in China over the next three years.

"The prospects for China's commercial real estate (CRE) market remain extremely promising to both institutional investors and developers. Supported by a maturing economy, the ongoing evolution of the corporate sector and a shifting consumption story, China will undoubtedly remain one of the top destinations for global asset allocation," said Alan Li, Managing Director of Capital Markets, CBRE Greater China.

The attractiveness of China's commercial real estate sector complements the diversity of investors now active in this market. In recent years, domestic institutional investors including insurance companies and real estate funds have become more active in the CRE sector due to finite investment alternatives, slower economic growth, historically low interest rates and a favorable policy environment. As a result of this environment, CBRE believes institutional investors will continue to increase their allocation in real estate and emerging as a major source of China's property market investment, accounting for 70% of the overall RMB 1 trillion contribution.

In addition to institutional investors, other sources of capital contribution within China's investment market include real estate developers, who are increasingly shifting focus from development to investment properties, and other cross-border investors.

"Chinese investors are looking more optimistically at the domestic real estate market. Factors including offshore capital control are also bolstering the market, placing international investors in an advantageous position to conduct offshore deals," said Sam Xie, Head of Research, CBRE China. "As a result of increased local and international activity, China has seen a 46% spike in investment turnover in the first half of the year and further cemented its position as one of the world's most active commercial real estate markets."

Beijing and Shanghai are expected to continue seeing a high level of transaction volume and activity, accounting for 60% of total nationwide transaction volume by 2020. Both markets will also continue to challenge other regional cities as legitimate APAC gateway markets. According to CBRE Research, from 2014 to 2016, transaction volume and activity in Shanghai exceeded that in Hong Kong and Singapore, demonstrating the growth potential of China's real estate market.   

Investment in China's CRE market also extends to the country's growth cities, with Guangzhou, Shenzhen, Chengdu, Chongqing, Tianjin and Wuhan seen as more attractive markets to investors. Additionally, cities like Nanjing and Hangzhou are expected to see potential growth spikes in transaction volumes and activity in the coming years due to the wealth spillover effect from more established markets and the relocation of industries.

CBRE Research believes that investment opportunities emerge in line with developmental phases of municipal economies and are therefore driven by local fundamentals.

"Investors are advised to focus on urban regeneration projects in major cities, tap into the shift of high-potential CRE investment markets into maturity phase, and explore new opportunities brought by the establishment of the new special economic zone of Xiong'an New Area and the One Belt One Road initiative," said Mr. Li.

SOURCE: World Property Journal

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