Direct investment doubled in China’s commercial real estate
Within the last three years, China rose to become the world’s sixth largest investment market
Over the past three years, China has emerged as a major commercial real estate investment market, with direct investment volumes doubling from US$8 billion (RM24 billion) in 2008 to over US$17 billion (RM51 billion) in 2011. China now ranks as the world‘s sixth largest market, behind only the USA, UK, Japan, Germany and France, an impressive growth story given that an active investment market only started to build in 2005, said a recent report by property consultancy firm Jones Lang LaSalle.
The report stated that while investors are predominantly focused on China‘s core Tier 1 cities - Shanghai and Beijing - interest in the China50 has been steadily growing, although it has ebbed and flowed with economic conditions and sentiment. In 2006- 2007, the China50 accounted for 10 per cent of total national investment activity, but this fell back in 2008- 2009 as investors retreated to Tier 1 cities during a period of global economic crisis and risk reduction. In 2010- 2011, activity has recovered strongly with transaction volumes increasing four fold in the China50, to account for 20 per cent of national activity.
Within the China50, the majority of transactions have been in Tier 1.5 cities such as Hangzhou, Dalian, Chengdu, Tianjin and Shenyang, the most liquid and transparent markets. But deals have also been struck further down the hierarchy in Tier 2 cities such as Zhengzhou, Changsha and Xiamen.
Retail and logistics favoured: “Looking forward, we expect to see further structural growth in commercial real estate investment volumes across the China50 as the stock of tradable assets increases. Volumes will, however, fluctuate with shifts in risk appetite and liquidity. A supply-demand imbalance in some occupational markets may dampen investor appetite over short periods of time, but this will also provide new opportunities for investors to enter a long-term growth market,” said the report.
Investors will focus primarily on the retail sector to tap into the China50‘s growing consumer markets, despite the challenges of securing retail assets and achieving scalability. More funds will also be available for logistics, but activity will be constrained by a limited number of standing investments. “Investors will favour Tier 1.5 cities, such as Chengdu, Hangzhou, Suzhou and Nanjing- i.e. those cities that have the most internationalised and diverse economies, with strong corporate bases, dynamic consumer markets and an emerging critical mass of tradable assets. In reality, however, investors will need to be opportunistic and we will see them move deep into the China50 in order to secure scarce assets.”