Foreign real estate institutional investors see great potential in China

China's international-grade logistics centers and real estate investment trusts (REITs) are sought-after sectors for foreign real estate institutional investors, according to an industry expert.

"Assets in China, such as international-grade logistics centers, remain sought-after, driven by China's rapidly-growing e-commerce market and rising middle class," said Matthew Bouw, Chief Executive of Cushman & Wakefield (Asia Pacific) when attending the 6th China International Import Expo (CIIE). The company is an international real estate service provider.

Bouw said he was always amazed by China's scale and dynamism. "Though China is currently facing some growth headwinds, it is still the second-largest economy in the world, with the year-over-year GDP growth of 4.9 percent in the third quarter and without the interest rate or inflation challenges of many other economies."

China, like most commercial real estate markets, is at an inflection point but there remain underlying strengths: return-to-office rates are among the strongest in the world, household deposit rates are high – the equivalent of more than 30 months' of retail sales as at June, according to the World Bank – and alternative and new economy asset classes will continue to drive commercial real estate activity across logistics, industrial, warehousing and supply chain sectors.

"In China specifically, the extremely high return-to-office rate has protected the sector from the structural change being seen in many other office markets around the world," said Bouw. "China's high savings rate also bodes well for the retail sector as consumer confidence returns. As elsewhere, alternative assets which offer consistent returns based on secular growth trends are also attracting attention."

According to Bouw, China's REIT market has seen rapid developments and has a big potential. Since the introduction of REITs in 2021, the market has grown to include 29 public REITs with a total market value of approximately 88 billion yuan ($12.1 billion). In 2022, total market value of China REITs surged 80 percent on the back of new product offerings, making China's mainland the fourth-largest REIT market in Asia.

The market has also recently expanded to include consumption-related infrastructure projects. To date, four of these projects have registered for public fundraising with more expected in the coming months.

"This additional liquidity channel has helped to raise investor interest in retail properties, especially prime shopping centers in metropolitan cities, and is expected to encourage further investment into the traditionally second-tier cities (usually provincial capital and economically developed cities) with less liquidity," said Bouw.

Cushman & Wakefield released two reports at the CIIE, examining the importance of urban planning in creating modern cities that are responsive and adaptive to climate change, specifically through the '15-minute city' concept and transit-oriented development. Leveraging data and insights from Cushman & Wakefield's global network, the reports aim to assist cities within Asia Pacific to improve their 'liveability' credentials as they journey towards carbon neutrality.