China’s Commercial Property Transactions Poised to Increase by 45% by 2020

Domestic Institutional Investors Will be the Main Source of Capital

Hong Kong, July 18, 2017 – Commercial property transactions in China will grow to RMB 260 billion by 2020, a 45% jump from last year, according to CBRE’s Towards 2020: China Investment Strategy report. 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 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.

In recent years, domestic institutional investors including insurance companies and real estate funds have become more active in the commercial real estate (CRE) sector due to finite investment alternatives, slower economic growth, historically low interest rates and a favorable policy environment. CBRE forecasts that institutional investors will continue to be the major source of China’s CRE investment, accounting for 70% of the overall RMB 1 trillion contribution.

In addition to institutional investors, mainland property developers and cross-border investors are also expected to remain active in the commercial property market by increasing their en-bloc property investments. CBRE estimates that real estate developers will account for around RMB 100 billion of CRE  transactions between 2017 and 2020.

Beijing and Shanghai are expected to represent 60% of China’s total transaction volume by 2020. Both markets will also continue to challenge other regional cities as dominant gateway markets in APAC.

The growth momentum has also spread to six growth cities, including Guangzhou, Shenzhen, Chengdu, Chongqing, Tianjin and Wuhan. Meanwhile, Nanjing and Hangzhou will benefit from the wealth spillover effect from more established markets and the relocation of industries. 

China Commercial Real Estate Investment Outlook

Based on each market’s tertiary value-added per capita and current CRE development, CBRE has categorized 286 Chinese real estate markets into the three phases: infancy, growth, and maturity. Beijing, Shanghai, Guangzhou and Shenzhen are typical maturity markets supported by robust infrastructure, a large number of investment-grade properties and improving liquidity. Mature markets are expected to enter a stability phase around 2035.

Between 2017-2020, CBRE believes there are six key factors shaping China’s commercial property investment strategy.

1.    Infrastructure - A total of 600 km of new urban railways will be added in tier-one and tier-two cities every year between 2015-2020, while 17 cities will commence the construction of subway systems, meaning that a total of 50 Chinese cities will have subway systems by 2020.

2.    Urbanization - Over the past decade, 200 million people have relocated from the countryside into cities. By 2030, another 200 million residents will be relocated into cities.

3.    Belt and Road - This initiative is expected to drive logistics demand in Western China, resulting to the relocation of manufacturing industries and construction of local infrastructure.

4.    Made in China 2025 - Launched in 2015, this initiative aims to establish China as a global manufacturing powerhouse, which is set to create huge demand for business parks, high-end warehouse, and logistic facilities.

5.    Demographic Change - By 2030, one in every four Chinese citizens will be over 60 years old, which is expected to drive robust demand for senior housing.

6.    Consumption Upgrading - Rising incomes and improving consumption structure will provide opportunities for investors while catering to urban residents’ consumption upgrading.

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

 

 

Disclaimer:

Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
 

About CBRE Group, Inc.

CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through approximately 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.​

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