Since the launch of the Greater Bay Area (GBA) initiative in 2017, commercial real estate (CRE) investment transactions in the region have turned vibrant as more domestic and foreign investors see opportunities in the market and interest spreads outside major cities.

Guangzhou and Shenzhen alone recorded an annual transaction value of more than 50 billion yuan (US$7.72 billion) for four consecutive years, according to a new report by global real estate services firm Cushman & Wakefield.

Corporations such as Li Ning, Qiaodan Sports, and Shenzhen Expressway have set up headquarters in Shenzhen, while small-scale single-block buildings in Guangzhou have attracted TMT (technology, media, telecom) companies.

Apart from Shenzhen and Guangzhou, investors have also set their sights on tier 2 cities. Investment portfolios are increasingly diversified to include new types of properties such as industrial logistics, cold chain and data centres, in addition to traditional office buildings and shopping malls.

The “Outline Development Plan for the Guangdong-Hong Kong-Macao Greater Bay Area” was officially announced in 2019, setting a major development milestone for the CRE investment market in the region. With more CRE investment opportunities emerging in other Greater Bay Area cities, investors have been drawn to cities other than Guangzhou and Shenzhen. 

The transaction value in these smaller cities increased from 2.7 billion yuan (4% of the total) in 2019 to 3.4 billion yuan (6%) in 2020, and reached over 200 million yuan (1%) in the first half of 2021. Total transaction volume in the GBA for the full year of 2021 is expected to exceed 50 billion yuan, proving investors’ persistent interest in the region, the report shows.

Capital in the Greater Bay Area used to be predominantly domestic, accounting for over 80% of the investment considerations. Yet foreign investors are also paying close attention to this market and their investment activities are increasing year after year, especially in Guangzhou. With an outstanding macroeconomic performance and strong spending power, coupled with low availability of quality mixed-use commercial portfolio in core locations, Guangzhou has become a major target of foreign investment.

Queeny So, Cushman & Wakefield’s executive director of capital markets, China, says: “Foreign investors have strengthened their investment in the Greater Bay Area since 2018 and 2019. By 1H21, ratio of foreign investment has surged from below 20% in the past to 25%. We believe foreign investors used to hold fewer assets in southern China. Yet CRE investment in the Greater Bay Area, as a key strategic zone of China, creates a golden opportunity for geo-strategic asset allocation, leading to a surge of such transactions. We believe foreign investors will continue to look for new investments in various Greater Bay Area cities.”

The GBA’s strong consumption trends are driving frequent CRE transactions. Of the various CRE types, traditional asset classes like office buildings and shopping malls in the Guangzhou-Shenzhen area constituted most of the transactions. With CRE asset value having softened, many occupiers and private investors are acquiring their current rental premises and turning them into their headquarters.

Key investments into major transactions are still dominated by insurance capital. For instance, the biggest transaction in Shenzhen was the 6.6 billion yuan purchase of a Vanke Yuncheng project by Ping An Insurance. Average transaction volume may decline to around 1 billion yuan per transaction, a slight drop from 2020.

In Guangzhou, the scarcity of high-quality office buildings in core locations has steered investors to other projects such as shopping malls. In the first half of 2021, the ratio of such transactions rose to over 30% of overall CRE transactions. For instance, Link REIT acquired Happy Valley in Guangzhou for 3.205 billion yuan. Occupier-type investors are more drawn to single-block office properties.

Alva To, Cushman & Wakefield’s vice president for Greater China, says: “Domestic investors in the Greater Bay Area and cash-rich real estate funds have turned active and kept a close eye on opportunities in the market, resulting in an upsurge in CRE transactions in 1H21. However, as transport and infrastructure facilities in the region are gradually completed, and coupled with policy support, other Greater Bay Area cities are getting more traction from investors. We believe investors will turn to opportunities in tier 2 cities outside Shenzhen and Guangzhou. Investment projects will also extend from traditional office buildings and shopping malls to logistics, cold chain, and data centres, resulting in a more diversified CRE market in the region.”