Investors also demonstrate interest in logistics facilities, cold storage, and data centers in China Tier 1 cities and satellites
Global real estate services firm Cushman & Wakefield has announced its 2022-2023 Mainland China Investor Intentions & Cap Rate Survey report. The report comes as China continues to optimize its COVID-19 control policies in an effort to re-energize economic growth, and as commercial real estate (CRE) investors are reacting quickly to the changing environment. Cushman & Wakefield conducted this latest investor intentions and cap rate expectations survey in late 2022, collecting valuable responses from mainland China’s largest CRE investors, both domestic and international.
The report reveals continued strong investor interest in China’s Tier 1 cities — especially in office assets in Beijing and Shanghai, as well as growing interest in alternative assets led by business parks, life sciences, and multifamily assets.
The majority of survey respondents also demonstrated interest in logistics facilities, cold storage and data centers in Tier 1 and surrounding satellite cities. In addition, among the major Tier 2 cities, Hangzhou — China’s rising tech city and provincial capital city of Zhejiang — remained as the top choice, followed by Suzhou and Chengdu.
In contrast to the growth sectors, at the time of the survey, investor interest in mainland China retail and hotel assets had declined significantly compared to two years ago, as a result of increasing pressures in the retail and tourism markets. However, with the most recent relaxation of COVID-19 control measures, Cushman & Wakefield observers expect investor interest in retail and hotel properties to pick up in 2023.
Although mainland China's 10-year treasury yield was relatively stable in 2022 overall, overseas markets saw a stronger interest rate hike policy, with the U.S. 10-year Treasury Rate rising by around 225bps over the year. Hong Kong SAR followed the same rise as in the U.S. market.
In the context of an interest rate hike environment, our survey revealed that, for 2023, the majority of respondents expressed a relatively prudent attitude towards the cap rate trend of the three traditional asset classes, namely Grade A offices, retail properties, and hotels; presenting an upward trend in most cities.
For business parks and apartments, investors suggested an overall flat trend on the cap rate change. In addition, for industrial assets, the majority of surveyed institutions suggested the cap rate trend for the coming year would remain flat, reflecting investors' greater recognition of the anti-risk capacity of industrial assets against the backdrop of COVID-19 and economic uncertainty.
Chris Yang, Senior Director, Valuation & Advisory Services, Head of REITs Practice Group at Cushman & Wakefield, said: “The rapid development of the C-REIT market in 2022 has contributed to increasing transparency in infrastructure related asset pricing. As a result, asset types such as logistics facilities, business parks, industrial plants, affordable rental housing and data centers have attracted increasing investor interest. In the long term, the scope of the C-REIT pilot program is likely to be expanded to include market-oriented long-term rental apartment and commercial real estate, further enhancing the development of the C-REIT market.”
Catherine Chen, Director and Head of Capital Markets Research at Cushman & Wakefield, Greater China, added: “Long-term leasing apartments and serviced apartments presented robust leasing fundamentals and strong risk resistance against the macro background of repeated COVID-19 and economic fluctuations in mainland China, becoming an asset type favored by investors. The survey revealed that close to 70% of respondents would consider investing in such assets in Beijing and Shanghai.”
Please download the full report here.