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Reviving the Silk Road and Its Potential Opportunities for CRE Investments

27/03/2018

China’s largest infrastructure development and trade expansion project to date – the Belt and Road initiative – has attracted participation from around 70 countries across Eurasia since its announcement in 2013. With an estimated US$8 trillion budget, the project is set to send ripples across the construction and real estate industries. Both China and participating countries also stand to benefit immensely from the economic development brought by Belt and Road projects.

At its core, the Belt and Road initiative calls for establishment of large-scale economic zones across Eurasia and construction of a broad assortment of projects: from ports to industrial parks, high-speed railways, airports, bridges, highways, gas pipelines, power stations and more. Real estate is an important component of this project as many of the participating countries are in great need of a modern built environment to fuel their growing economies.

Cushman & Wakefield’s latest report, Silk Road Rebirth: Gearing Up for the Belt and Road, examines the potential opportunities for investment by CRE operators.

Identifying Opportunities along the Belt and Road

 The potential opportunities (and corresponding risk) vary enormously across the wide geography of Belt and Road given the enormous scale of the initiative and complexity of the markets covered. The report identified eight broad regions with potential opportunities (see Table 1-1). These include: ASEAN frontier markets (e.g., Myanmar, Philippines, Indonesia, Cambodia), ASEAN emerging markets (e.g., Malaysia, Thailand), South Asia (e.g., Pakistan, Sri Lanka, Bangladesh), and Niche markets (e.g., Maldives, Singapore, Israel).

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Opportunities in ASEAN Frontier Markets

Including countries such as Indonesia, Philippines, Myanmar and Cambodia, these markets are developing rapidly, often from a low base. High value-added economic activities tend to be strongly concentrated in a single city, and there are often weak connections to outlying provinces and challenging topography. Substantial investment in infrastructure will be needed for these countries to maintain their high economic growth rates.

As a key outbound market for Chinese tourists, tourism, leisure and retail investments will be attractive to private sector firms. In particular, domestic firms could capitalize on their understanding of Chinese consumers’ preferences to successfully enter this field.

Opportunities in ASEAN Emerging Markets

 There are a range of opportunities in countries like Malaysia and Thailand for strong Chinese developers with a record of delivering quality product. In the industrial-park space, there is ongoing demand for modern business parks with financial services, condominiums, quality public space and full-service business centers. In addition, there is demand for logistics properties, particularly property suitable for modern 3rd party logistics occupiers.

Opportunities in South Asia

 Participating countries like Pakistan, Sri Lanka and Bangladesh offer a chance to invest/build in biomanufacturing, new materials and artificial fibers into industrial parks, together with more traditional labor-intensive manufacturing activities.

Significant population growth and urbanization in south Asian economies are also driving demand for mass market housing.

Opportunities in Niche Markets

The report considers Singapore, Maldives and Israel to be interesting and somewhat unique markets within the Belt and Road, which could provide attractive niche opportunities for some Chinese investors. Singapore and Israel are mature, developed markets, with strong economies and liquid investment markets, while the Maldives is a hot tourism destination which is very popular with wealthy Chinese visitors.

As more mature economies with strong local players, opportunities exist in all sectors, but competition is fierce, and yields lower than in developing markets. In addition, Singapore also attracted a large number of Chinese individual retail investors which creates an alternative market for Chinese developers.

To get the full insight on other regions, download the report here.

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