Canada’s Brookfield Assessment Management: Big Plans For China
February 25th, 2014 by Alisa Sava
With the world’s second largest economy, China’s real estate market continues to grow with high intensity. Despite notion that China has a glut of office space, investors have big bets on the country’s commercial real estate.
According to the latest news, Brookfield Asset Management, Toronto-based real estate firm is planning to expand its portfolio of Chinese commercial real estate in 2014. As a global alternative asset manager, Brookfield is operating and possessingover $103 billion of real estate assets across the office, retail, residential, multifamily, industrial and hotel sectors. Providing an overview and assessment of the most attractive property assets, the company has an impact on current real estate trends.
“Brookfield is among the largest office-space owners in the U.S. and Canada, with landmark properties including Brookfield Place in Manhattan and Bank of America Plaza in Los Angeles”
In the beginning of 2014, Brookfield Asset Management invested $500 million in China Xintiandi, the property of high-profile developer Shui On Land. The investment was made in form of Convertible Perpetual Securities, representing approximately 21.7% of the issued share capital of China Xintiandi. This property is expected to generate even more profit in the coming decade when Xintiandi becomes similar to the West End of London. China Xintiandi is not going to be the only Chinese property of Brookfield: in the near future the company is planning to invest in more properties in China.
Is it Worth Investing in China?
Over the past few years, China’s economy has grown over 30% in real terms and become the second largest economy on a global scale.
In 2013 China attracted some foreign direct investment (FDI), building up a strong investors’ confidence. It is expected that China will lead the world’s economy in 2014, funding a growth programin order to support urban development, including housing, schools, roads, etc.
“We are confident that we will see steady growth in FDI for 2014, as global investor sentiment recovers and reforms by the new (Chinese) leadership help attract more foreign capital,” said Shen Danyang, a spokesman of the Commerce Ministry.
Here are the following trends predicted for China in 2014:
- Foreign funds are expected to compete with domestic buyers and pick up core assets in tier-one cities, such as Shanghai and Beijing.
- Sustainability will become a trend.
- Secondary markets are going to draw more attention among the investors.
- Retail and logistics property development will be in high demand.
Among China’s primary real estate markets the experts also mention Shanghai, Guangzhou and Shenzhen. These cities are the country’s most liquid and transparent markets, characterized by well-established international business connectivity and strong policy support from central government.
Warehouses Are Some of China’s Hottest Markets
With the huge demand for Chinese goods, food and thousands of other items, Jeffrey Schwartz, Co-Founder of Global Logistics Properties, is making big bets on the warehousing sector. According to the recent Jones Lang LaSalle report, the rapid growth of e-commerce is creating demand for new warehousing space as well as making the logistics sector one of the most attractive in China.
The experts predict that by 2020 the value of goods and services purchased online by Chinese people could outreach USD 1 trillion which, in turn, will create massive development opportunities. Many consumer websites have already begun establishing their own network of warehousing facilities. Thus, developers of logistics property are expected to have new projects for the next few years:
“Working with e-commerce firms not only provides developers with major tenants, but also an easier time acquiring land from local governments.”
Global Logistic Properties owns 156 million square feet of warehouses, half of them are located in the Shanghai area. The famous tenants such as Nike Inc., United Parcel Service Inc., Amazon.com allow the company to receive permanent income, creating furtherdemand for new warehousing spaces.
According to the China 50 Real Estate Markets report, Bohai Bay/Beijing region is the largest logistics hub. Such export-driven port cities like Dalian, Qingdao and Ningbo have developed in secondary hubs with half of their space designated for logistics parks.
Business and High-Tech Parks Are Gaining Popularity
Few years ago, business parks were an absolutely new concept for China. Today, the business park sector is among the most rapidly growing sub-market.
The growing use of information technologies stimulates demand for high-tech/cyber parks and business parks as niche markets. IT, biotechnology and clean energy companies become the main tenants for this property type. Chongqing, Wuhan, Xi’an and Shenyangoffer the best prospects for the demand growth.
Originally driven by traditional high-tech industries, nowadays demand is coming from a wider range of industries. Thus, the business park market is closely connected with the 12th five-Year Plan, which puts in priority the development of biotechnology, new IT (broadband, Internet security), new energy technology, clean energy vehicles, environmental protection, aerospace and telecoms. Today, China is the world’s second largest R&D market after the US, and aims to increase spending on R&D to 2.2% of GDP in the next few years.
The Risk of Oversupply: Fact or Myth?
Despite the fact that China’s commercial real estate remains strong, there is still a risk of the oversupply ofoffice buildings. The office supply in such cities as Chengdu and Chongqing comprise over 40 percent of the national total, while the average vacancy rate across the country has grown up by 0,9%. Moreover, developers are planning to add 15 million square meters to office space in 20 major Chinese cities.
“Though the commercial real estate sector is growing a little fast, it is healthier than the office sector,” notes Sunny Zhang, general manager of the corporate research center of Insite.
That is why, an increasing number of real estate companies choose less popular locations with cheaper rent. Thus, Capital Land Ltd., the Southern Asia’s biggest developer, has started to invest in suburban areas of Shanghai.
“Lots of companies which don’t need to be in the city center are moving to the suburbs, so that provides an alternative to people who want more space but less prime buildings,” comments Jason Leow, the China chief executive officer at the Singapore-based developer.
For example, despite being a small town, Shanghai still has enough room for new office buildings, especially when talking about the Class A offices.
In recent years, China’s economy has been boosted up by rapid industrialization and urbanization. Rising incomes have stimulated demand for residential real estate and foreign investor’s expansion which, in turn, has led to the development of commercial real estate industry in China. Despite the existing risk of office oversupply, there are still a lot of outskirts areas in China to invest in.