Most Chinese Commercial Property Investment No Longer in China as Outbound Deals Jump 46%

Chinese investments in overseas real estate increased by 46 percent to a record $16.5 billion in 2014, as China’s slumping property market combined with regulatory reforms to send its investors across borders in search of deals.

For the first time ever, Chinese buyers have spent more on commercial real estate outside of China than domestically in 2014, according to a report released today by property consultancy JLL, as outbound acquisitions of office and retail space jumped by nearly half compared to the previous year.

2014 also saw a geographic shift in Chinese buyer preferences, with Australia capturing a growing portion of both commercial and residential investment, although Europe continues to be the leading destination for Chinese real estate buyers.

Chinese Outbound Deals Could Reach $20 Billion in 2015

The prolonged slump in China’s domestic market – many cities now report an oversupply of office and mall space, combined with the country’s growing economy and a more liberal regulatory environment to transform Chinese real estate investors into global market players this past year.

Darren Xia, head of JLL’s International Capital Group for China noted that, “Chinese real estate investors used 2014 to internationalize their investment strategies. At a time when macro concerns around developers and residential prices dampened the domestic market, international diversification allowed Chinese investors to continue to grow sustainably and to ensure long-term returns.”

According to JLL’s figures, 52 percent of all commercial real estate transactions by Chinese investors were for assets outside of the country’s borders, and the agency believes that this trend will likely continue.

David Green-Morgan, head of global research for JLL’s International Capital Group said, “The emergence of Chinese capital into the global real estate market has been growing steadily over recent years and the fact that half of all Chinese purchases in 2014 were outside of China shows the demand for overseas property is likely to remain strong for many years to come. The number of new Chinese investors JLL is in dialogue with demonstrates that we are likely to see outbound capital continue to grow in 2015, with the possibility of it reaching US$20 billion by year end 2015.”

Commercial Investments Are Big and Getting Bigger

Within the real estate world, Chinese investor are showing a preference for commercial assets, and deals for office and retail space are growing at a faster pace than residential transactions.

The total value of overseas commercial real estate purchased by Chinese investors in 2014 climbed to $11.2 billion last, according to the report’s findings, while residential developers increased their outbound allocations to over US$5.3 billion, a 38 percent increase over 2013.

Office and residential site acquisitions accounted for 85 percent of all Chinese overseas purchasing activity, although JLL also noted strong demand for hotel and hospitality assets.

China Now the #5 Source of Real Estate Capital Globally

The surge in outbound investment also boosted China’s ranking among real estate investors globally, according to the study.

Although the country’s economy slowed to its lowest rate in years, GDP growth for the year still reached 7.4 percent, according to government figures, with some metrics indicating that China is already the world’s largest economy.

This economic growth, and a taste for real estate, enabled China to climb to the fifth position globally among sources of real estate investment capital, trailing only the US, Canada, Germany and the Middle East, according to JLL’s analysis.

Australia Gaining Favor with the Chinese

The rapid growth in Chinese outbound real estate investment continued to favour Europe, which captured $5.5 billion in capital from China last year to claim one third of total transactions.

In 2014 Australia also became a target for Chinese investors, with over $3 billion in real estate deals heading down under last year. The Americas attracted $2.5 billion in Chinese real estate investment.

At the city level, Sydney outstripped all municipalities except London (which captured $4 billion in Chinese capital) to become the second-ranked urban destination for Chinese real estate investment last year, with $2.2 billion in deals.

Just this week Chinese investors have announced two major commercial acquisitions in Sydney, with Dalian Wanda revealing plans for a $1 billion mixed-use project on Monday, and Fosun announcing a $93 million purchase of an office building in the Australian city today.

New York, San Francisco, Los Angeles, Chicago, Melbourne, Tokyo and Singapore also ranked among the top cities for Chinese property deals by capturing between $500 million to $1.5 billion each in Chinese capital last year.