UK Fund Manager Rates Tianjin 3rd-Best Investment Destination Globally

High levels of office vacancy and an overbuilt retail sector may be key ingredients in making a global top three real estate investment hotspot, or so it may seem following a report published this month by London-based asset management firm Schroders.

The inaugural edition of the company’s “Global Cities 30 Index,” which ranks 161 cities worldwide for their investment potential, chose the northern Chinese city, which is notorious for its glutted real estate markets following a government-led investment boom, as the third-best city in the world to invest in property.

The index, which put Shanghai at the top of the world, followed by New York, includes four mainland cities among its top ten destinations. Beijing came just after Tianjin on the list with Shenzhen in Guangdong province ranked sixth. Dallas, Texas came in just after Beijing at number five.

“It should be no surprise China’s cities rank so highly given it has strong factors such as GDP, working population and retail sales,” Hugo Machin, co-head of global real estate securities, said in a prepared statement. To put together its rankings, Schroders evaluated cities according to factors including projected economic growth, disposable income and working age populations to identify what it calls “the most economically vibrant cities across the world.”

Schroders says it ranked the cities to “provide a view of where some of the biggest global real estate opportunities lie,” although it did not specify whether it had included property specific criteria, such as land prices, rental rates and occupancy levels or investment sales data in its calculations.

“Although it has slowed recently China is still growing more strongly than the rest of the world and we believe it will become a much bigger part of our forecast over time.” The family owned firm manages £343.8 billion ($459.6 billion) on behalf of institutional and retail investors, financial institutions and high net worth clients from around the world, according to its website, and active in equities, fixed income, multi-asset, alternatives and real estate strategies.

Rankings Clash With Other Surveys

The fund manager’s rankings stand in contrast to the reckoning of many real estate professionals who work in the region, as measured by industry non-profit the Urban Land Institute. In a survey of its Asia-based members published last December, Shanghai was ranked as the ninth best city in the region for real estate investment and Beijing landed in the fourteenth spot in Asia.

No Chinese second-tier city landed in the ULI’s top 20 regionally this year, with the organisation’s members choosing Tokyo as the top investment destination in Asia.

As the nearest port to Beijing, Tianjin has been a focus for government-led development, with Chinese authorities attempting to create a Pudong-like financial district as part of a northern Chinese development corridor. The unfortunate result has been an office market which averages more than 30 percent vacancy and climbing, according to agency data. On the retail side, even experienced developers such as Hong Kong Hang Lung Properties have struggled to fill projects in an overbuilt market.

In a recent report, the ULI noted of China’s second-tier cities that “With new product continuing to arrive on the market, many cities face years of oversupply, particularly of office and retail assets. Cities such as Shenyang, Chongqing, Tianjin, and Chengdu, for example, have been particularly affected.”