Strong investor confidence remains in mainland China market

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Author: Ravi Philemon

Cushman & Wakefield’s 2020 Mainland China Commercial Real Estate Investor Intentions Survey report demonstrates strong investor confidence in the mainland China market, despite the Covid-19 outbreak.

strong investor confidenceFindings show strong investor confidence will cause activities to rebound within 6-months

The survey findings show that more than 60% of respondents believe that investment activities will rebound within six months after the Covid-19 pandemic ends, and 99% of respondents express their willingness to continue investing in mainland China.

Strong investor confidence more evident in Tier 1 cities

In terms of investment in cities, investors are more enthusiastic about Tier 1 cities, especially foreign investors, with 100% of respondents from foreign institutions stating they have plans to invest in Shanghai in the next 12 months. Despite the impact of the pandemic, most investors have confidence in the market and are optimistic about the long-term development of the commercial real estate (CRE) market in mainland China.

Strong investor confidence reflected in one-to-one interviews

The survey took the form of one-to-one interviews, with senior management of the most active investment institutions in mainland China over the last three years invited to participate. The project accumulated 122 valid survey completions and analyzed them to provide investors with timely market intelligence.

James Shepherd, Head of Research, Asia Pacific at Cushman & Wakefield, said: “The survey results show that domestic investors are more proactive than foreign investors in terms of project execution, and more willing to increase their investment budget in 2020. Impacted by the Covid-19 outbreak, most foreign-funded enterprises have significantly slowed their project progress, which provides domestic-funded enterprises with opportunities to accelerate their pace of acquisition.”

Alvin Yip, President of Capital Markets in Greater China, and Head of Capital Markets in China at Cushman & Wakefield, mentioned: “Looking back at past crises, the impact of SARS in 2003 was not prolonged, as China’s economy was in a period of rapid growth, and although the global financial crisis of 2008 took a toll on the global economy, China’s real estate market rebounded rapidly afterwards due to high liquidity in real estate projects and a healthy financial market.”

“Today, most investors have become accustomed to turbulence. The straight rise in asset values over the past few years has kept investors waiting for new market entry opportunities should a correction arise. With the China government’s concerted effort to control the coronavirus, and with the support of economic stimulus measures, we are hopeful that its impact will only be short-term. Experienced investors may find this an opportunity to expand their footprint in China,” Yip added.

Catherine Chen, Director of Research, Asia Pacific at Cushman & Wakefield and author of the report, commented:“We can see from the findings of this survey that investors generally have an objective view on the impact of Covid-19. They believe that the pandemic will have certain negative impacts on the market in the short-term, especially in the office, retail and hotel sectors, but this short-term impact will not cause them to abandon their investment.”

“Under the impact of the pandemic some industries are experiencing rapid growth in demand, such as online retail and services, artificial intelligence and big health. We anticipate that this growth will lead to the further development of the CRE sectors supporting these industries, including data centers, logistics and R&D centers.”

Shepherd added, “For investors who are based in Asia, China is an important part of their portfolio allocation in the Asia-Pacific region. We expect that there will be a range of investment opportunities in the market when the pandemic situation gradually becomes clearer, and transaction volume may rebound in the second half of the year.”

Strong investor confidence also reflected in another recent survey

A recent report by CBRE said that Singapore-based investors have turned more active in China in the since August 2018 to leverage weaker competition from domestic investors. A number of Singapore developers have made acquisitions in China’s Tier 1 cities. Given the sheer market size, China remains a major market for investors who are focused on long-term growth.

The report said that there is continued strong demand from Singapore-based buyers seeking opportunities in mature economies, particularly cities in the US and Western Europe. A select group of buyers also looked beyond the European gateway cities to Ireland and Poland.

Top five destinations favored by Singapore-based investors (H1 2019 vs H1 2018)

No  H1 2019 H1 20018
1 China United States
2 Korea Germany
3 Japan United Kingdom
4 United States China
5 United Kingdom Japan

Source: CBRE Research

For Singapore-based investors, acquisition strategies focused primarily on structural opportunities such as logistics properties as well as defensive assets such as offices. There are also buyers who are adding multi-family assets to their portfolios. An emerging trend among Singapore-based investors is the pursuit of higher yields and alternative investments, including student accommodation and data centers.

Asian outbound capital flows is being spurred by new sources of capital looking for diversification

In total, Asian outbound commercial real estate investment amounted to US$19 billion in H1 2019. This translates to a decline of 25% y-o-y, weighed down by the rebalancing of portfolios by mainland Chinese investors and global economic uncertainties. Despite a moderation in global capital market flows, the momentum in Asian outbound capital flows is being spurred by new sources of capital looking for diversification, a low interest-rate environment, historically low yields and increasing popularity in new destinations.

Meanwhile, mainland Chinese investors have disposed of assets in key overseas markets including London, New York and Vancouver – albeit at significant profit – in H1 2019. This, along with existing capital controls, is likely to perpetuate the trend of net disposal by mainland Chinese investors. Purchasing is expected to be led by SWFs and corporates acquiring assets for self-use.

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