Beijing

The Beijing investment market is becoming increasingly attractive to foreign institutional investors with a growing number of en bloc sales recorded and numerous projects financed by foreign investors due to the continued loan tightening by local financial institutions.

Beijing witnessed more than 10 en bloc transactions last year, five of which were concluded by foreign investors. Replus purchased two office towers in China Central Place, Goldman Sachs acquired The Exchange Beijing, and CitiGroup bought two office towers at Xihuan Plaza.

The report predicted that high-quality investment grade properties will continue to remain the target of foreign investors, and single ownership assets with stable income remain the most attractive investment even if such opportunities are hard to come by in the Beijing market at this stage.

Shanghai

Last year witnessed an increased level of en bloc investment transactions in the Shanghai property market following the pace of 2005. Global sources of capital were particularly active in the Shanghai market. More than 20 en bloc deals were recorded in the city last year, with a total value of approximately US$2.3 billion. Acquisitions were made mainly by foreign investors.

In particular, residential investments became a favored sector for institutional investors followed by the office sector as the next most popular choice, the report said.

Given the lack of investment grade opportunities in the commercial market as well as the competition that drove down commercial yields, institutional investors started to find residential investment opportunities attractive, where they can find better deal flows as well as higher yields.

Out of the 20 total en bloc transactions in 2006, nine were contributed by the residential sector. In contrast, 2005 only had two out of eight. The total amount of investment by institutional investors in residential market reached approximately US$676 million, more than eight times higher than from a year earlier.

In addition, strong evidence of yield compression in Shanghai commercial properties was also recorded. Average gross investment yields in Shanghai now fall in the seven percent to eight percent range.

With the transaction of core investment assets such as Ocean Tower and Platinum Tower - sold to Singapore developer Ascendas and German fund SEB - Shanghai is beginning to take shape in developing a core market for more risk-averse institutional investors such as pension funds, Jones Lang LaSalle concluded in the report.

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