Though China's stock market has seen record drops and wild swings in 2015, China-driven outbound capital flows to commercial real estate have grown at a compound annual growth rate (CAGR) of nearly 72 percent in the last four years, reaching over $10 billion in 2014. According to CBRE's recent study, The Expanding Role of Chinese Capital in Global Real Estate Markets, this is the case. بيع
This is the first year that annual flows have surpassed $10 billion. During 2013 and 2014, China accounted for nearly a quarter of all outbound commercial real estate investment from Asia.
What started with Chinese sovereign wealth funds (SWFs) and tier-one insurers buying high-profile trophy assets overseas has now spread to mid-tier insurers and corporate investors. Meanwhile, Chinese real estate developers have been busy expanding into international markets in order to satisfy the demand for residential assets in key locations from mainland HNWIs.
Chinese capital's meteoric rise
"The past two years have seen an exponential rise in purchases of offshore real estate by Chinese investors, including HNWIs, companies, and institutional investors," said Frank Chen, Executive Director and Head of CBRE Research, CBRE China. Each of the classes, on the other hand, is motivated by a particular set of factors. The purchasing of offshore residential property by mainland HNWIs is often linked to a desire to support their children's overseas studies and is in preparation for planned immigration. The primary motivation for Chinese developers to purchase offshore property is not to create office space for global expansion, but to meet rising demand for residential properties in key offshore destinations from mainland HNWIs. The primary reason for mainland institutional investors to invest in offshore property is to gain access to a wider range of appealing investment opportunities and diversify an increasing pool of domestic wealth.
Taking advantage of opportunities in key offshore markets such as the United Kingdom, the United States, and Australia
According to CBRE's Global Investor Intentions Survey 2015, global investors looking to buy commercial real estate assets tend to invest in London. London has attracted widespread interest from international investors due to its massive and liquid real estate market, as well as an open, relatively stable, and well-developed market climate. In 2013 and 2014, real estate acquisitions in London accounted for roughly 80% and 52% of overall China-sourced commercial real estate investment flows to Europe, respectively. Even as yields in global gateway cities begin to fall, they are likely to remain attractive in London; national jobs figures for the UK are at a multi-decade high, and projections of steady economic growth are expected to sustain the strong performance of local property markets in the coming years.
In 2013 and 2014, outbound investment from China to the United States accounted for more than a fifth of total outbound investment from China, with the bulk of the money going to hotel and office properties in gateway cities. Purchases of hotel and office assets in New York, Los Angeles, Chicago, Houston, and San Francisco accounted for more than 60% of US-bound capital to commercial real estate over the two-year period, with premium office and hotel assets in New York and Los Angeles accounting for roughly half of the total.
While the scale of each nation's economy and international financial centers contribute to the high level of Chinese investment in the US and the UK, Australia has relied heavily on the strength of its commercial relations with China, its largest trading partner. China overtook Singapore as the second largest foreign buyer of commercial property in Australia in 2014, with properties in Sydney being the most appealing to Chinese buyers.
Offshore investment is not without its dangers.
Residential, luxury office, and hotel properties in gateway cities have seen the most initial buying activity from mainland investors. We believe that as more investors gain experience and confidence in overseas real estate investment, they will begin to search for investment opportunities in a wider range of geographies and asset types. As the pressure on property prices in US gateway cities continues to rise, mainland investors may need to expand their quest for better investment opportunities to include other major metropolitan areas such as Atlanta, Boston, Dallas, Denver, and Seattle. Meanwhile, a number of mainland developers have begun to venture into retail and other forms of property. The attractive returns provided by industrial and logistics assets are also attracting the attention of some institutional investors.
However, the abundance of global investment prospects comes with a slew of new challenges. Offshore regulators can impose new regulatory restrictions and requirements for international real estate buyers, as well as new policies that will complicate the landscape for all market participants. Given the cyclical nature of real estate investment, the recent strong performance of global property markets will almost always be accompanied by market downturns of varying degrees across regions and property types. As a result, as they continue to develop their global portfolios, mainland investors will need to be prepared for these and other challenges.
Given that many Chinese investors have no experience investing in foreign real estate, navigating unfamiliar market and regulatory environments may be the most difficult challenge. "While allocation is global, success in real estate is still local," said Marc Giuffrida, Executive Director, Global Capital Markets. "Over the last three years, we have observed that the most active Chinese investors are those who get local quickly, whether by retaining a global advisor, forging local partners, or building a local team." Understanding laws, market fundamentals, and business practices is critical; as competition for assets grows, having a strong local presence enhances the opportunity to obtain good opportunities by allowing for more sourcing and accurate and timely underwriting."