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Growing volumes of international capital chasing China’s logistics, business parks and data center assets
HONG KONG SAR - Media OutReach - 29 March 2021 - Cushman & Wakefield (NYSE: CWK), a leading global real estate services firm recently published a report around the theme of The Signal Report: Investor's Quarterly Guide to 2021. Following a subdued 2020 due to the COVID-19 pandemic, total real estate investment volumes (excluding development sites) in Asia Pacific are expected to bounce back in 2021 to approximately USD165 billion, which is about 90% of the 2019 level, according to Cushman & Wakefield. This rebound in investment activity in the region is supported by greater investor confidence as Asia Pacific leads the economic recovery across the world. The region is also riding on the positive momentum off the back of a surge in investments in the last quarter of 2020.
Real estate investors adopted a wait and see approach for the most part of 2020 as the pandemic swept across the world, resulting in a decrease of almost 29% in total investment volumes (excluding development sites) during the year globally as compared to the year before. Being the first region to be impacted by the virus, the Asia Pacific investment market took a hit in the first half of 2020, but momentum picked up in Q4 2020 with China and South Korea leading the region in terms of investment activity.
Francis Li, International Director and Head of Capital Markets, Greater China, Cushman & Wakefield said, "We see growing volumes of international capital chasing China's logistics, business parks and data center assets, given the country's rapid growth in hi-tech and e-commerce industries. China's office and retail sectors are also among the best performing markets globally, benefiting from being 'first in and first out' of the pandemic. Although relatively high levels of new supply are due in the near-term, we believe in the mid- to long-term growth prospects as the country continues to take the lead in infrastructure development, job creation, and innovation."
Global Investment Landscape
As with 2020, global economies, leasing markets and capital markets will march to the tune of the pandemic situation this year, resulting in a high level of synchronicity across these different drivers of the real estate market. In contrast to the prior global recession, investment activity is expected to lead the leasing markets in the rebound of the global property markets due to the strong financial conditions globally.
Global capital markets have labored under a yoke of uncertainty over the last year. 2021 promises to lighten that weight progressively at which point low base rates, high capital availability for debt and equity and attractive valuations relative to other asset classes suggest a far more rapid recovery than in past downturns. In terms of property types, logistics and multifamily assets have been the 'pandemic winners' and will remain attractive investment bets globally. However, the office and retail sectors will still present investment opportunities as they continue to evolve in line with changing working, living and shopping patterns.
Catherine Chen, Director and Head of Capital Markets Research, Greater China, Cushman & Wakefield said: "For core investments, we recommend office properties in China's Tier 1 cities and rising tech cities such as Hangzhou, as well as logistics centers in Tier 1 and satellite cities. Non-discretionary retail and premium quality shopping centers in Tier 1 and provincial capitals are also wise choices for experienced investors with solid asset management capabilities. For value-add targets, urban regeneration and conversion projects will be hot picks for mid- to long-term oriented investors who have access to such opportunities and sound local partnerships. Finally, for investors seeking opportunistic options, attention can be paid to underperforming and/or pre-distressed assets from over-leveraged developers, and in post-pandemic tourism bounce destinations such as Hong Kong."
Asia Pacific and Greater China Investments
Across Asia Pacific, the region is expected to see increasing momentum in investment activity, though the pace of recovery will vary for different markets.
- Mainland China and Japan performed comparatively strongly during 2020, with relatively small declines in investment volumes. Combined with a strong Q4 2020 performance, they are likely to be the first to recover to pre-COVID-19 levels.
- In 2021, Mainland China is projected to see the highest real GDP growth among the 20 major economies globally, at 8.7%. This bodes well for the CRE investment market, which will likely continue to attract international capital.
- While Hong Kong saw a similar uptick in H2 2020 and volumes are expected to lift in 2021, they are still likely to remain subdued in comparison to the 2015-19 average of USD21 billion.
- South Korea had an impressive run in 2020, posting the highest annual investment volume since 2015. The robust investment activity in this market is expected to continue with overall volumes to be around the 2019 level with some upside potential. India also saw a strong performance in 2020 and investment momentum is expected to be sustained as it attracts increasing attention from international investors.
- Singapore and Australia saw volume declines of 73% and 45% respectively in 2020, though 2019 was a particularly strong year for Singapore which exacerbates the size of the annual decline in 2020. However, both markets showed renewed activity levels towards the end of the year, suggesting a further uplift into 2021.
From a property-type perspective, the following broad regional trends are expected to persist:
- Logistics will remain a key focus as e-commerce continues to flourish and supply chains evolve. The logistics and industrial sectors in Asia Pacific have a strong growth trajectory, also benefitting from its relatively lower cost base and growing working-age population. In particular, mainland China is expected to witness the highest growth in e-commerce revenue in the next five years, doubling from USD863 billion in 2020 to USD1.6 trillion in 2025.
- Data centers continue to offer tremendous growth potential, benefitting from the acceleration in cloud connectivity. Asia Pacific markets are expected to perform well as data center destinations given the rapid development of technology platforms and networks across many of its markets.
- Offices will still be a much sought-after investment asset, particularly those in prime locations. As companies calculate the impact of remote working on their office occupancy needs and begin to make longer-term commitments, the office market should see some increase in momentum in the second half of this year. Greater China is expected to continue to lead office occupier demand in 2021, given effective control of the pandemic.
- Convenience/necessity retail and locally popular destination retail will remain resilient as they have proven during the pandemic so far. Experiential retail has been far more challenged due to pandemic restrictions, especially those retailers reliant on international travel and so are expected to take longer to recover.
Note: For more investor insights, please refer to Cushman & Wakefield's The Signal Report: Investor's Quarterly Guide to 2021.
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