Investment Sentiment in Greater Bay Area Residential and CRE Markets Remains Cautious

Improvement Tasks, Industrial Parks and REITs Achieve Traction

• Main market residential gross sales within the Better Bay Space (GBA) strengthened in 1H 2023 in comparison with the identical interval final yr, with the advance primarily seen in Q1, whereas the secondary market skilled downward strain
• Complete funding quantity within the GBA industrial actual property (CRE) market reached RMB28.2 billion in 1H 2023, accounting for 31.5% of whole mainland China CRE funding quantity within the interval
• Native capital and self-use consumers are the important thing drivers within the GBA funding market, with industrial/enterprise parks and China Actual Property Funding Trusts (C-REITs) gaining traction.

HONG KONG SAR – Media OutReach – 20 July 2023 – International actual property companies agency Cushman & Wakefield immediately revealed its Better Bay Space Residential and Funding Market 1H 2023 Overview and Outlook. The tempo of financial restoration in 1H 2023 fell wanting expectations, and traders in China typically adopted a cautious view. GBA major market residential gross sales strengthened in comparison with final yr, regardless of the general residential market exhibiting an unsure upwards trajectory within the interval following China’s border reopening. Given the excessive international rate of interest surroundings, the CRE funding market (large-sized offers at >RMB 100 million) additionally slowed, with whole funding quantity dropping considerably in comparison with final yr. Waiting for 2H 2023, there are prospects for some metropolis and native governments to calm down residential-related management measures, and such actions will assist stabilize the GBA housing market. As for the funding market, it’s anticipated that actual property funds and institutional traders will focus extra on funding alternatives associated to C-REITs.

GBA Residential Market

The GBA major residential market recorded roughly 222,000 transactions within the first half of 2023. The gross sales determine was an enchancment of 16.1% y-o-y and 4.7% q-o-q (Chart 1), with the increment primarily seen in Q1, though this efficiency is within the context of the comparatively low base in 2022 underneath the pandemic restrictions, coupled with a spike in new residential launches in 1H 2023.

Alva To, Cushman & Wakefield’s Vice President, Better China & Head of Consulting, Better China stated, “In the beginning of the border reopening interval in Q1 2023, residential transactions within the GBA recovered, and the normal peak season throughout March and April was additionally extra lively in comparison with final yr. Nonetheless, the increase from the border reopening couldn’t be sustained, and the earlier pent-up demand has but to help the market sufficiently to rebound additional. Since April, residential transactions have once more slowed, with transaction numbers in June falling by greater than 40% in comparison with March’s peak, exhibiting an absence of upward momentum. The 2H 2023 transaction quantity will hinge upon general financial improvement. Numerous GBA cities have just lately been stress-free their housing market insurance policies, together with easing measures on “reference costs” and “buying restrictions”. Consequently, we consider that the GBA market will stabilize considerably in 2H 2023, with month-to-month residential transactions anticipated to achieve round 35,000 to 40,000 models, bringing the 2023 full-year whole transaction quantity to round 430,000 to 460,000 models, an increase of seven to fifteen% in comparison with final yr.”

As for residential value ranges, some GBA cities did file will increase in major house costs within the 1H interval, though these rises had been primarily skewed by a couple of high-end new tasks. Within the secondary market, house value actions higher mirror the present underlying developments. In Shenzhen, for instance, Cushman & Wakefield’s value index for mid-to-high-end secondary housing for Q2 2023 has fallen by 8.9% from its prior peak in Q2 2021 (Chart 2), reflecting the downward pricing strain seen within the secondary market. However, value changes might be favorable for end-users selecting to enter the market. Underneath the federal government’s path that “homes are for residing in, not for hypothesis,” any additional coverage adjustments for the residential market will possible be conservative, we count on house costs to additional decline by one other 5% in 2H 2023.

GBA CRE Funding Market

The sluggish international financial restoration, coupled with excessive rates of interest and consequent elevated borrowing prices, has prompted traders to stay cautious, with the funding market primarily supported by native capital. The GBA 1H 2023 CRE funding market (large-sized offers at >RMB 100 million) slowed, with whole funding reaching RMB 28.2 billion, down 10.5% y-o-y. Nonetheless, GBA transactions nonetheless accounted for 31.5% of the general mainland China funding market — setting a brand new file excessive and representing a big soar from 18.0% in 2018 when the GBA initiative was first launched (Chart 3). Inside the GBA’s mainland cities, the Guangzhou and Shenzhen funding markets had been essentially the most lively, with Guangzhou recording whole transaction quantity of RMB13.2 billion, exceeding its 2019 full-year transaction stage and setting the best 1H interval efficiency of the final 5 years.

GBA CRE Funding by Transaction Worth and Asset Kind

The 1H 2023 interval recorded a complete of 32 CRE transactions. Eleven transactions had been at greater than RMB1 billion, accounting for 34% of the overall transaction quantity, a slight drop in comparison with final yr’s 39%. The steadiness of 21 transactions had been at lower than RMB1 billion. (Chart 4). During the last six months, the typical transaction worth per deal has confirmed indicators of falling, as house owners undertake extra pragmatic views and turn into extra prepared to promote at a reduction amid the present financial uncertainties.

When it comes to property kind, conventional workplace and R&D-focused workplace property proceed to dominate the CRE funding market, accounting for over half of the overall funding quantity in 1H 2023 (Chart 5).

Charli Chan, Cushman & Wakefield’s Govt Director, Capital Markets, China commented, “This has been an opportune time for end-users and traders to enter the market amid the present enticing pricing, whereas builders have allowed extra room for negotiation to shut offers and increase their money move.”

Charli Chan added, “The China authorities continues to actively promote the event of C-REITs, offering other ways for traders to supply capital, which is more and more enticing for international traders and institutional funds. With coverage help, the C-REITs market is creating quickly, and curiosity is rising in high-end manufacturing enterprise parks and industrial parks, whereas rental housing residences, and warehouse and logistic properties are additionally attracting traders’ consideration. Within the industrial park sector, tenants are mainly from rising industries corresponding to electrical automobiles, biopharmaceuticals and renewable power, attracting traders for his or her development potential.

“Rising demand for rental housing, and the accompanying authorities coverage help, have propelled this sector to take a 24% share of whole funding quantity in 1H 2023. The latest growth of the C-REITs pilot scheme to incorporate client infrastructure can also be anticipated to assist drive extra transactions of neighbourhood malls, buying centres, department shops and different associated retail properties. Waiting for 2H 2023, extra properties are anticipated to return onto the marketplace for sale, with builders and house owners setting extra versatile costs that meet market expectations, and in flip, shortening the negotiation course of between consumers and sellers.”

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Caption: Alva To, Cushman & Wakefield’s Vice President (Left) & Head of Consulting, Better China (Left) and Charli Chan, Cushman & Wakefield’s Govt Director (Proper)

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About Cushman & Wakefield

Cushman & Wakefield (NYSE: CWK) is a number one international industrial actual property companies agency for property house owners and occupiers with roughly 52,000 staff in roughly 400 workplaces and 60 nations. In Better China, a community of 23 workplaces serves native markets throughout the area. In 2022, the agency reported international income of US$10.1 billion throughout its core companies of valuation, consulting, undertaking & improvement companies, capital markets, undertaking & occupier companies, industrial & logistics, retail and others. It additionally receives quite a few trade and enterprise accolades for its award-winning tradition and dedication to Variety, Fairness and Inclusion (DEI), Environmental, Social and Governance (ESG) and extra. For extra data, go to www.cushmanwakefield.com.hk or comply with us on LinkedIn (https://www.linkedin.com/firm/cushman-&-wakefield-greater-china).