China Outbound Real Estate Investment Reaches US$10 Billion Milestone
China Outbound Real Estate Investment Reaches US$10 Billion Milestone
July 22, 2015
Diversification of Chinese Capital Key to Capturing New Opportunities
Kong, July 22, 2015 –According to
CBRE’s recently published report, The
Expanding Role of Chinese Capital in Global Real Estate Markets, over the
past four years, annual China-sourced outbound flows to commercial real estate
experienced a compound annual growth rate (CAGR) of approximately 72% to reach
over US$10 billion for
the year 2014. This is the first time annual flows have exceeded the US$10
billion1 mark. China also accounted for over a quarter of total outbound
commercial real estate investment from Asia during 2013 and 2014.
The report provides an overview of outbound activity among
Chinese individual, corporate and institutional investors, and discusses the
opportunities and challenges for Chinese investors both in and beyond gateway
cities in the U.K., U.S. and Australian real estate markets.
What began with moves by China’s SWFs and tier-one insurers
to make highly publicized purchases of trophy assets abroad has now spread to
acquisitions by mid-tier insurers and corporate investors. Chinese developers
have also been active in expansion into overseas markets to meet increasing
demand from mainland HNWIs for residential assets in key destinations.
The Rapid Rise of Chinese
Frank Chen, Executive
Director and Head of CBRE Research, CBRE Chinacommented, “the past two years have seen explosive growth in
purchases of offshore real estate by Chinese investors, including HNWIs,
corporations and institutional investors. Each group is motivated differently.
For mainland HNWIs, the purchase of offshore residential property often ties in
with the desire to support the overseas study of their children and to prepare
for intended immigration. For Chinese developers, the main drive to purchase
offshore property is not simply to establish office premises to expand global
business lines, as it is for many Chinese corporations, but to meet increasing
demand from mainland HNWIs for access to residential properties. For mainland
institutional investors, the main motivation is to obtain access to a wider
array of attractive investment opportunities and diversify a growing pool of
Capturing Opportunity in Offshore
Markets - UK, US and Australia
CBRE’s Global Investor Intentions Survey 2015 revealed London
as the preferred city for investment among global investors seeking to purchase
commercial real estate assets. With a large and liquid real estate market, as
well as a transparent, relatively stable and highly developed market
environment, London has drawn wide-spread enthusiasm from global investors.
Real estate acquisitions in London accounted for
approximately 80% and 52% of total China-sourced commercial real estate
investment flows to Europe in 2013 and 2014, respectively.Even as yields in gateway cities across the
globe continue to compress, yields are likely to remain comparatively
attractive in London; national employment figures for the UK are at a
multi-decade high and forecasts of stable economic growth are expected to
support the strong performance of local property markets over the next few
US-bound flows accounted for over a fifth of total outbound
investment from China in 2013 and 2014, the majority of which has gone to hotel
and office assets in gateway cities. Over the two-year period, purchases of
hotel and office assets in New York, Los Angeles, Chicago, Houston and San
Francisco accounted for over 60% of US-bound investment flows to commercial
real estate, with flows to premium office and hotel assets in New York and Los
Angeles comprising approximately half of the total.
Whereas the high level of Chinese investment flows to the US
and the UK is due in significant part to the size of each nation’s economy and
the international status of their financial centers, Australia has instead
relied largely on the strength of its commercial ties with China, its largest
trading partner. In 2014, China rose to become the second largest foreign
purchaser of commercial property in Australia (behind only Singapore).
Properties in Sydney drew the most attention from Chinese investors.
Offshore Investment Comes With Risk
Initial purchase activity from mainland investors has largely
focused on residential, premium office and hotel assets in gateway cities. As
they gain experience and become more confident in overseas real estate
investment, CBRE expects more investors will start to look for investment
opportunities across a wider range of geographies as well as across a greater
variety of asset types. As the pressure on property prices in gateway cities in
the US continues to increase, in the search for better investment opportunities,
mainland investors will need to expand their search to include other large
metropolitan areas, such as Atlanta, Boston, Dallas, Denver and Seattle. In the
meantime, a number of mainland developers have already begun to foray into
retail and other property types. Some institutional investors are also
beginning to take note of the attractive returns offered by industrial and
Many Chinese investors have little experience investing in
offshore real estate; navigating unfamiliar market and regulatory landscapes
may prove to be the most significant challenges.
Johnny Shao, Executive
Director of Investment Properties, CBRE China, commented, “In
the initial stages of their entrance into foreign markets, Chinese investors
should seek to cooperate with local partners or global retained advisors to
enhance their understanding of the local market and regulatory landscape and
thereby obtain access to the most attractive deals in an increasingly
In addition to the above-mentioned challenges, the path ahead
for mainland investors may also consist of a number of other risks. Regulators
in offshore markets may roll out new regulatory restrictions and requirements
for foreign purchasers of real estate, as well as implement new policy
complicating the landscape for all market participants.The strong performance of global real estate
markets in recent years will be followed, invariably, by market downturns that
will vary in degree across regions and property types. Mainland investors will thus need to come
prepared for these and other challenges as they continue to build their global
Fig. 1: China outbound flows to U.K. Commercial Real Estate
Fig. 2: China outbound flows to Australia Commercial Real
Fig. 3: China outbound flows to U.S. Commercial Real Estate
1Figures only account for direct
investment into commercial property, and do not include investment into
development sites or individual investor purchases of residential property.
Source: CBRE, Real Capital Analytics
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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