Demand and transaction activity grew strongly in Eastern China’s office and land markets during the second quarter of 2013 according to global real estate consultancy Jones Lang LaSalle in a report published today.
The Jones Lang LaSalle Second Quarter Property Review reported on market transactions and prospects in all property sectors, and found a surge of activity in en bloc office investment transactions in Shanghai, land sales in the Shanghai area, and strata title sales nationwide.
The report found that Shanghai continued to be the favoured destination for real estate investment in China based on activity by both domestic and foreign players. Demand for centrally located, stabilized assets with strong income remained robust, and the Shanghai office market is still the most sought-after sector in China.
According to the report, the basis for this demand is healthy market fundamentals in Shangahai, and long-term growth prospects. One result of this optimism concerning the Shanghai market was the sale by Forterra Trust (formerly Treasury China Trust) of the Central Plaza building in Luwan District to American private equity firm Carlyle this quarter for RMB 1.67 billion.
“An increased focus on Tier 1 has coincided with an increased allocation of capital to China by global core investors, such as pension funds and sovereign wealth which previously viewed the market here as too risky,” commented Alan Li, Head of Investment for Jones Lang LaSalle Shanghai. “These buyers are now increasingly focused on Shanghai’s commercial market as a source of core and core-plus investments.”
The report found that capital values for office assets have stabilized over the past year, but are expected to grow moderately moving forward provided rental growth recovers.
Strata-Titled Office Transactions Growing
In addition to en-bloc office investments, the report also found that strata sales of office space increased 28% compared to the same period last year, with a total GFA sold of more than 79,000 square meters since the end of March.
However, despite the strong demand, the average strata-titled sales price dropped slightly this quarter to 0.4% q-o-q due to a large number of new projects launched onto the market and some discounting by developers of existing projects to clear inventory.
Developers Driving More Land Sales
Developers were the primary driver of transactions in the past quarter, purchasing land mainly in decentralized areas for future development. End-users also became active in the second quarter. For example a number of domestic companies purchased land in the former Pudong World Expo site to develop headquarters offices. According to government data, there was approximately RMB 51.7 billion in residential and commercial-use land transacted in the second quarter.
While short term concerns over the tightening credit environment in China have affected financial markets as a whole over the past quarter, these changes have not had a strong impact on en-bloc investors in commercial real estate, many of whom still have access to affordable offshore financing. Most institutional investors do not see the situation as a long term threat and are still confident in Shanghai’s strong market fundamentals.
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