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September 8, 2016

With the end of the G20 meeting in Hangzhou, China has made its stamp not only as host but as a global economic force that can’t be ignored.

The significance of the meeting was manifold. It was the final G20 summit for U.S. President Barack Obama and the first for British Prime Minister Theresa May. It was also the first time that China has hosted the summit, an indication of the country’s growing influence on the world’s financial markets.

According to the G20 Leaders’ Communique, the meeting concluded with a broad consensus over a wide-range of policies to help accelerate global growth. Among them was a commitmemt to strengthen the G20’s growth agenda and continued commitment to build an open world economy.

“We met at a time when the recovery of the global economic is progressing, resilience has improved in some economies and new sources for growth are emerging. But growth is still weaker than desirable,” it says.

Indeed, with continued uncertainty in Europe following Brexit and concerns over the outcome of the U.S. election, investors may be looking at China for growth opportunities.

While China’s economic growth has slowed, government reforms have maintained their momentum and the country’s domestic market has continued to attract investors. In fact, commercial real estate investment in China had a record year in 2015, with the total value of transacted assets reaching approximately RMB 150 billion.

“With regards to its economy, China usually does what it says it will do under its 5-year plan. The services sector has expanded to help drive an economy previously reliant on the manufacturing industry. There may have been the occasional pockets of a mismatch in supply and demand of resources, across the diverse cities, but overall the Chinese economy and its real estate market remains healthy,” says Dr Megan Walters, Head of Capital Markets Research in Asia Pacific

Domestic capital accounted for the lion’s share of investment in China’s commercial real estate for much of the past decade, and comprised three-quarters of activity in 2015. Given the escalating size of China’s real estate investment universe and improving market transparency, Dr Walters expects investment activity to expand further in the years to come.

Before the global financial crisis of 2008, the logistics market was focused on Tier One hubs like Beijing, Shanghai, Guangzhou and Shenzhen. As China’s prosperity spreads inland from the more developed coastal conurbations, developers have established a presence in Tier Two and even Tier Three cities – where location and infrastructure make them ideal inland distribution centers. This has resulted in a new national hierarchy of logistics hubs.

In the residential sector, sales volumes across 20 major cities in China shot up by 28 percent year-on-year in 2015, based on JLL’s latest data. Meanwhile, in the office market, domestic financial services companies expanded aggressively in Tier 1 and 2 cities such as Beijing, Shanghai Guangzhou and Shenzhen with rents in these regions showing rapid momentum, although third- and fourth-tier cities still face excess supply. In some Tier 1 cities, moving out of central business districts was a popular option for cost-conscious multinational occupiers, especially those in the manufacturing and trading sectors.

Shanghai, in particular, showed strong leasing market fundamentals triggered by high investor interest, and an increasing number of core investors have entered the market. Total take up of office space in Shanghai reached 1.45 million square meters in 2015, that’s more than Tokyo, London and New York combined.

In the second quarter of this year, China recorded US$6 billion of transactions, down 24 percent year-on-year but up 96 percent on the first quarter.

In the first six months of this year, China overtook the Middle East in terms of volume of outbound hotel investments, illustrating the country’s long-term strategy of securing income through investing globally, according to Dr Walters. Despite a slowing economy, Chinese investors continued to deploy real estate capital overseas, indicative of the China’s influence on the regional and global markets, she adds.

Megan Walters
Head of Asia Pacific Capital Markets Research

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