MARKETBEAT Investment Snapshot China 2016 17 May 2016 Contents Building transactions 2 Land transactions 3 Source of capital 5 Transactions between foreign entities 5 Outlook 5 Following a record-breaking, this year s opening months saw investment market in the 16 Greater China cities experienced a plunge in transaction volume Total consideration dropped 81% q-o-q and 54% y-o-y to RMB6.47 billion (US$980 million) in the first quarter of 2016. This figure is the lowest recorded in the past five years and at least partially reflects the slowing of China s economy combined with the lack of core investment opportunities across the 16 Chinese cities tracked quarterly. Tier 1 city investment markets were quiet within the quarter. While Shanghai recorded the highest total transaction volume of any city tracked, at RMB4.03 billion (US$620 million), this figure was the lowest transaction volume recorded in Shanghai for any quarter over the past three years and a 48 percent drop as compared with. Star Plaza Zhabei was sold to Guangling Investment for RMB 3.2 billion (US$489 million). The vendors are Greenland Group and China s biggest private fund, Star Capital. This project comprises a large scale commercial complex located in Zhabei district of Shanghai, providing approximately 140,000 sqm of retail space and 50,000 sqm of office space in four office towers. Vivocity located in Xi an s Second Ring Road South was the largest transaction among Tier 2 cities within the quarter. According to DTZ/Cushman&Wakefield database, this property, with a total 70,000 sqm of retail space, was sold to SZITIC Commercial Property Group for RMB480 million (US$37.73 million) by Mapletree Investments Pte Ltd. Authors Andrew Ness Head of Greater China Research +852 2507 0779 andrew.ness@dtzcushwake.com Catherine Bai Manager, Greater China Research +852 2250 8227 catherine.xl.bai@dtzcushwake.com Contacts Francis Li Investment and Advisory Services +852 2992 4321 francis.cw.li@dtzcushwake.com Figure 1 Total building purchasing activity by sector (US$mn) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 * Offices Retail Industrial Residential Mixed Others 2016# dtzcushwake.com INVESTMENT SNAPSHOT 1
China 2016 Building transactions Only a small number of buildings changed hands. This was clearly a reflection of the continuing slow-down of China s economy and lack of core investment opportunities across the 16 Chinese cities. The total transaction volume is down by 81% q-o-q and 54% y-o-y to RMB6.47 billion (US$980 million). This is the lowest number recorded in the past five years. The property investment market had little to deliver both in terms of quality and quantity. Several building transactions in this quarter involved non-core properties, such as the Vivocity in Xi an. Despite this property s good location and accessibility, to date it has not attracted a large volume of customers. That is why after five years of unsatisfactory leasing and sales performance, Mapletree decided to sell the property to the SZITIC Commercial Property Group, a private property company founded in Shenzhen. Following the Group s recent investment in a commercial/ residential complex in North Xi an in late, this acquisition is believed to be part of the group s further expansion and brand building program in China. Among different types of purchasers, institutional investors were relatively active in this quarter. With capital injection from Jiabao Group, Guangling Investment, a subsidiary of the Everbright Group, acquired Star Plaza for RMB3.2 billion (US$489 million). This property is likely to be converted into the second Imax Park in Shanghai as part of Everbright Group s plan to further build their Imax Park brand in China. Private property vehicles were the most active vendors within the quarter. ARA sold Waterfront Place Block E and G in Shanghai Pudong to Pramerica for RMB830 million (US$127 million). Private property companies, institutions and quoted property vehicles did not dispose any property in the past quarter within the cities covered in our quarterly investment activity survey. Figure 2 Total building purchasing activity by purchaser type (US$m) Quoted Property Vehicle Figure 3 Corporate Quoted Property Company Institution Private Property Company Private Property Vehicle Public Sector/Government Other/Unknown Private Investor 0 2,500 5,000 * 2016# Total building disposal activity by vendor type (US$m) Quoted Property Company Private Property Company Private Property Vehicle Corporate Other/Unknown Public Sector/Government Institution Quoted Property Vehicle Private Investor 0 2,000 4,000 6,000 8,000 2016# Table 1 Significant building deals ADDRESS/PROJECT NAME CITY SECTOR GFA(SQ M) PRICE(RMB MILLION) Star Plaza Zhabei Shanghai Mixed Use 160,318 3,200 489.15 Sky Park Shenzhen Office 24,700 1,168 178.54 Waterfront Place Block E&G Shanghai Office 27,805 830 126.87 Xi'an VIVO City Xi'an Retail 70,000 480 73.37 HP Tower 1, 1A, 2F Beijing Office 3,808 351 45.20 PRICE(US$M) dtzcushwake.com INVESTMENT SNAPSHOT 2
China 2016 Land transactions Transactional activity in land was also less active within the quarter. In the 16 leading cities covered within our quarterly investment activity survey, transaction volume in US dollars dropped 56% q-o-q and 9% y-o-y to RMB171.024 billion (US$26.143 billion). Of the total transactions recorded, 48.3% comprised mixed use sites, sales of which totalled RMB82.589 billion (US$12.624 billion). Judging from their planned use, two third of sites zoned for mixed use contained residential use although the exact proportion remains unknown. On the other hand, other uses was the land type which witnessed the biggest growth in transaction volume. Most of the land under this category was located in suburban areas of Beijing and is expected to be developed into properties that can accommodate both office and residential use. Developments of this type are attractive to those non Beijing household registration holders who are not entitled to purchase residential properties in Beijing s core urban areas. Among all 16 Greater China cities, within the first quarter, Nanjing had a higher total land transaction volume than any one of the Tier 1 cities, with land sales recorded at RMB32.692 billion (US$4.997 billion), the majority of which comprised residential and mixed use sites located in suburban Nanjing. Land transaction volumes in Hangzhou, Beijing and Shanghai all surpassed RMB20 billion. Most of the land sold was also zoned for residential or mixed use purpose, but with a residential sub-component. Table 2 Significant land deals 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 * 2016# Offices Retail Industrial Residential Mixed Others Figure 4 Total land purchasing activity by sector (US$m) ADDRESS/PROJECT NAME CITY SECTOR GFA (SQ M) PRICE(RMB BILLION) PRICE (US$M) Lot no. 201 514 901, Zhabei District Shanghai Mixed use 182,326 6.93 1,059.63 T107-0079, Houhai CBD Shenzhen Mixed use 208,700 5.27 804.96 No.2016G01, Ginger homes east, south Chahar Road, west Rehe Road Nanjing Mixed use 161,211 4.82 736.79 Lot no. OS-06A, OS-10B, Chaoyang District Beijing Office 119,400 4.15 634.37 Jin East Six Gua 2016-018 Tianjin Other/Unknown 284,900 4.10 626.73 dtzcushwake.com INVESTMENT SNAPSHOT 3
China 2016 Table 3 Investment Market (US$m) (deals over US$10m) * 2016# YR TO YR TO * YR TO 2016# Total investment volume 30,855 26,691 44,676 64,373 27,123 139,535 166,595 162,863 TOTAL REAL ESTATE PURCHASING ACTIVITY BY SECTOR Office Land 973 1,872 217 874 828 3,285 3,937 3,792 Building 989 916 1,651 2,666 369 5,653 6,222 5,602 Retail Land 2,725 1,238 1,843 587 529 7,763 6,393 4,198 Building 625 64 0 546 76 2,395 1,235 687 Industrial Land 719 672 758 1,225 584 4,458 3,374 3,239 Building 0 0 0 0 36 0 0 36 Residential Land 11,089 9,431 15,117 21,617 8,463 41,316 57,254 54,628 Building 0 0 153 48 0 410 201 201 Mixed Land 11,199 11,569 19,019 34,490 12,625 63,326 76,276 77,702 Building 0 290 5,214 1,659 499 6,833 7,163 7,662 Others Land 2,012 67 180 390 3,114 2,279 2,649 3,751 Building 524 572 524 270 0 1,817 1,889 1,365 TOTAL REAL ESTATE PURCHASING ACTIVITY (DOMESTIC VS. FOREIGN) Domestic Land 27,948 24,681 37,045 59,157 25,842 120,696 148,832 146,725 Building 1,259 959 5,787 3,175 790 12,286 11,180 10,711 Foreign Land 769 168 89 26 301 1,732 1,052 584 Building 879 883 1,755 2,014 190 4,822 5,531 4,842 dtzcushwake.com INVESTMENT SNAPSHOT 4
China 2016 Source of capital Following the high level of transactional activity recorded in, foreign capital did not show a strong appetite with respect to making acquisitions in either the standing building or land market in China during the past quarter. Total foreign investment volume dropped 70 percentage points in to RMB3.296 billion (US$491 million). For property investment, a 78 percentage points plunge was recorded and land investment similarly witnessed a drop of 61 percentage points to RMB1.97 billion (US$301 million). The largest deal from a foreign purchaser in this quarter was Yanlord Group Singapore, which acquired two development parcels in Tianjin with a total land area of 262,083 square metres in total. According to the current planning, these two sites will be developed into retail and residential complexes. In contrast, Hong Kong companies are rather inactive in this quarter with only one transaction of HK$351 million (US$45.2 million) - Sincere Watch (Hong Kong) Limited having purchased two strata title floors of the HP Tower in Beijing. Figure 5 Investment volume by domestic and foreign purchaser (US$m) 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Figure 6 Domestic Purchaser - Land Foreign Purchaser - Land Cross-border investment in China by source of capital Taiwan 4% Singapore 61% Transactions between foreign entities * Domestic Purchaser - Building Foreign Purchaser - Building Hong Kong 9% International 26% 2016# Based on DTZ/Cushman&Wakefield data, due to very limited transactions, outflow of capital only reached RMB1.681 billion (US$249 million) in this quarter. The largest transaction is Singaporean ARA selling Waterfront Place Block E and G located in Shanghai Putong to Pramerica for RMB830 million (US$127 million). Figure 7 Cross-border investment in China by outflow of capital Outlook Hong Kong 18% Singapore 82% Between 2H and 2016, the downward pressure of the global economy intensified. From the point of view of China s economy, the situation was further exacerbated by the US interest rate hike, relatively strong US dollar exchange rate, sharp decline in commodity prices, currency depreciation and stepped up emerging economy capital outflows. Within this period the global market staged a series of extreme volatilities. Meanwhile, under the pressure of economic slowdown, the central bank repeatedly inject liquidity into the market by adjusting monetary policy. To a certain extent, these adjustments made up for the capital outflow caused by the economic downturn and the Fed s interest rate hike. First-tier and some stronger second-tier cities are still attractive investment destinations, sparking upward momentum in their property markets while at the same time causing their land markets to become increasingly competitive. New on-line tools for raising finance, such as crowdfunding, are providing additional liquidity for some developers, assisting them in continuing to be able to access land in core cities. In the future, on-line financial tools will play an even larger role in providing key support for real estate funding. As the commercial real estate markets in first-tier cities continue to grow to maturity, companies have increasingly begun to pursue increased efficiency of capital operations, in a bid to seamlessly integrate investment, financing, property management along with a final exit mechanism. Continued innovation in China s capital market can potentially provide a new direction for its commercial real estate market, not only optimizing its financing structure, but also promoting its sustainable development. However, high value-added investment opportunities have become increasingly rare in the past year, and will become even scarcer over the next few years. At the same time, returns on real estate investment and macroeconomic performance of the economy are closely related. Concerns about "hard landing" of Chinese economy as well as the ongoing devaluation of RMB still exist. Existing structural economic problems have not recently witnessed any major easing and endogenous growth momentum is yet to be enhanced. These phenomena are causing periodic turbulence in China s investment markets, which collectively still face ongoing risk from these persisting imbalances. dtzcushwake.com INVESTMENT SNAPSHOT 5
Contact Francis Li Head of Investment and Advisory Services, Greater China +852 2992 4321 francis.cw.li@dtzcushwake.com Alvin Yip Managing Director, Investment and Advisory Services, China +852 2507 0716 alvin.kp.yip@dtzcushwake.com Jim Yip Managing Director, Investment and Advisory Services, China +8621 2208 0250 jim.ks.yip@dtzcushwake.com Disclaimer This report has been produced by DTZ/Cushman & Wakefield for use by those with an interest in commercial property solely for information purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information obtained from public sources which DTZ/Cushman & Wakefield believe to be reliable, but we have not verified such information and cannot guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of any of the information contained herein and DTZ/Cushman & Wakefield shall not be liable to any reader of this report or any third party in any way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in whole or in part. 2016 DTZ/Cushman & Wakefield. All rights reserved. To see a full list of all our publications please go to cushmanwakefield.com or download the Research App Global Headquarters 77 West Wacker Drive 18th Floor Chicago, IL 60601 USA phone +1 312 424 8000 fax +1 312 424 8080 email info@cushwake.com cushmanwakefield.com