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Minggu, 15 Agustus 2021 21:54:00

Greater Bay Area commercial real estate market turns vibrant

Forecast total transaction volume to exceed RMB50 billion in 2021 Investors eye on tier 2, 3 cities with appetite for Industrial logistics, cold chain, data centers

Transaction volume in Guangzhou and Shenzhen exceeds RMB50 billion for four consecutive years, forecast similar volume for 2021 while transactions extend to tier 2 cities in the region.

Foreign investors increase investment in the Greater Bay Area especially low value assets in Southern China for geo-strategic asset allocation.

Though transactions are still dominated by traditional industries, the mature transport network favours the development of new property types, with industrial logistics, cold chain, and data centers preferred by investors.

HONG KONG SAR - 12 August 2021 - Global real estate services firm Cushman & Wakefield announces Greater Bay Area Commercial Real Estate Investment Market Review and Forecast 1H 2021 today.

The rapid development of the Greater Bay Area in recent years, coupled with a maturing transport network, has driven industrial transformation and shifts in real estate investment in the region. Apart from Shenzhen and Guangzhou, investors also set eyes on tier 2 cities. Investment portfolios are increasingly diversified to include new types of properties such as industrial logistics, cold chain and data centers, in addition to traditional office buildings and shopping malls.

Commercial real estate investment transaction value in the Greater Bay Area

The launch of the Greater Bay Area initiative in 2017 has drawn immediate attention from owner-occupiers, private investors and funds. Commercial real estate (CRE) investment transactions have turned vibrant, with Guangzhou and Shenzhen recording annual transaction value of over RMB 50 billions for four consecutive years. Such transactions include headquarters purchase by corporations such as Li Ning, Qiaodan Sports, and Shenzhen Expressway in Shenzhen. Driven by TMT (technology, media, telecom) companies, small scale single-block buildings in Guangzhou have also attracted owner-occupiers.

"Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area" was officially announced in 2019, setting a major development milestone for CRE investment market in the Greater Bay Area.With more CRE investment opportunities emerging in other Greater Bay Area cities, investors have been drawn to cities other than Guangzhou and Shenzhen since 2019. The transaction valule has increased from RMB2.7 billion (4% of the total) in 2019 to RMB3.4 billion (7% of the total) in 2020. Over RMB200 million (1% of the total) of such transactions were recorded in 1H21. Total transaction volume for the full year of 2021 is expected to exceed RMB 50 billion, proving investors' persistent  interest in the region. (Chart 1)

Distribution of investors in the Greater Bay Area

Capitals in the Greater Bay Area used to be predominately domestic, accounting for over 80% of the investment considerations. Yet foreign investors also pay close attention to this market and their investment activities are increasing year after year, especially in Guangzhou. With an outstanding macro-economic performance and strong spending power, coupled with low availability of quality mixed-use commercial portfolio in core locations, Guangzhou has become the investment target of foreign investors.

Ms. Queeny So, Cushman & Wakefield's Executive Director, Capital Markets, China, shares, "Foreign investors have strengthened their investment in the Greater Bay Area since 2018 and 2019. By 1H21, ratio of foreign investment has surged from below 20% in the past to 25% (Chart 2). We believe foreign investors have used to hold fewer assets in southern China. Yet CRE investment in the Greater Bay Area, as a key strategic zone of China, creates a golden opportunity for geo-strategic asset allocation, leading to a surge of such transactions. We believe foreign investors will continue to look for new investments in various Greater Bay Area cities. "

Types of CRE investment in the Greater Bay Area

Strong consumption power of the Greater Bay Area drives frequent CRE transactions (Chart 3). Of the various CRE types, traditional asset class like office buildings and shopping malls in the Guangzhou-Shenzhen area constituted the most transactions. With CRE asset value softened, many occupiers and private investors are acquiring their current rental premises and turn them into their headquarters. Key investments into major transactions are still dominated by insurance capital For instance, the biggest transaction in Shenzhen was the RMB6.6 billion purchase of Vanke Yuncheng project by Ping An Insurance. Number of CRE transactions in Shenzhen is expected to be record-breaking this year, with total transaction volume similar to that of previous year. Average transaction volume may decline to around RMB1 billion per transaction, slight drop from year 2020.

In Guangzhou, the scarcity of high-quality office buildings in core locations has steered investors to other projects such as shopping malls. In 1H21, the ratio of such transactions therefore rose to over 30% of overall CRE transactions. For instance, Link REIT acquired Happy Valley in Guangzhou this year at RMB 3.205 billion. Meanwhile, occupier-type investors are more drawn to single-block office properties.

As the public transport network in the Greater Bay Area matures, not only has commute time and distance greatly reduced, but it also results in industrial transformation and population influx. This has driven the rise of economy in tier 2 and 3 cities, resulting in new CRE investment types such as industrial logistics, cold chain, data centers, etc., all of which are favored by investors and have recorded perpetual transactions (Chart 4).

Mr. Alva To, Cushman & Wakefield's Vice President, Greater China, concludes, "Domestic investors in the Greater Bay Area and cash-rich real estate funds have turned active and kept close eye on opportunities in the market, resulting in an upsurge in CRE transactions in 1H21. However, as transport and infrastructure facilities in the region gradually complete and coupled with policy supportother Greater Bay Area cities are getting more traction from investors. We believe investors will turn to opportunities in tier 2 cities outside Shenzhen and Guangzhou. Investment projects will also extend from traditional office buildings and shopping malls to logistics, cold chain, and data centers, resulting in a more diversified CRE market in the region." (*).