foreign investor appetite fuels strong quarter of chinese property investment despite weak occupier demand
may 23, 2019
shanghai, may 23, 2019 – according to cushman & wakefield research’s latest greater china capital markets express report, mainland china recorded a total of rmb81 billion (us$12 billion) worth of commercial real estate (cre) investment in q1, up by 14.6% y-o-y. foreign capital accounted for a 35% share, rising from 31% in 2018.
francis li, international director, vice president, greater china and head of capital markets, greater china at cushman & wakefield, pointed out that such an uptrend was mainly a result of foreign investors actively optimizing investment portfolios on a global scale to capitalize on china's relatively high economic growth compared with other markets like europe and the united states.
the quarter witnessed a drop-off in leasing activity. co-working operators pulled back and many other occupiers sought to reduce occupancy costs, resulting in a 5-year low of net absorption in q1.
james shepherd, managing director of research, greater china at cushman & wakefield, said: “in comparison to q1 2018 where total office absorption hit a whopping 1.4 million sq m*, last quarter recorded only 474,000 sq m – a factor with the potential to spook the chinese development community, many of whom are already struggling under a highly restrictive lending environment. for investors who are less aggressively leveraged and maintain an optimistic view for office demand to return in the latter part of the year, this is creating some enticing investment opportunity at increasingly attractive pricing, though we note an increasing investor preference for stabilized cash-flow generating assets as opposed to product with higher lease-up risk.”
*of note, the quarter’s absorption of 1.4 million sq m is equivalent to the entire grade a office stock of bangkok.
despite the lack of office absorption in q1, investment into office assets dominated with a 39% share (excluding mixed-use) by volume across greater china. while office assets will likely remain the most favored asset class given relatively stable cashflow and ease of operations, future supply is a potential concern should the scheduled completions materialize for the remainder of the year.
catherine chen, head of forecasting & capital markets research, greater china at cushman & wakefield, said,
“a massive 12.4 million sq m of new office supply is set to complete in the greater china region in 2019, surging from 6.2 million sq m in 2018. however, given the tight lending environment and increasing vacancy which hit a historical high of 18.1% in q1, we expect many developers to delay project launches, relieving pressure on the supply side.”
chen added, “besides investment in office and retail, many investors are increasingly targeting a more diverse portfolio to balance risks and returns. aside from the red-hot logistics sector, co-living investments are increasingly sought on the back of a growing sharing economy.”
ahead, cushman & wakefield forecasts ongoing co-investment from foreign players this year as more first-time investors look to deploy capital in china, seeking experienced partners and opportunities with cash-strapped developers.
shepherd added, “with mainland china’s gdp growth forecast to decline to between 6 to 6.5% in 2019, coupled with a generally held expectation that tight real estate lending policies will remain in place, it will no doubt be a challenging year for some investors while highly rewarding for others that are able to capitalize on the prevailing buying opportunity.”
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cushman & wakefield (nyse: cwk) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. cushman & wakefield is among the largest real estate services firms with 51,000 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 and 2018 in the categories of overall, agency letting/sales, valuation and research in china. in 2018, the firm had revenue of $8.2 billion across core services of property, facilities and project management, leasing, capital markets, valuation and other services. to learn more, visit www.cushmanwakefield.com or follow @cushwake on twitter.
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mandy qian
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mandy.qian@cushwake.com
