Is there any change to office investment in mainland China since the COVID-19 pandemic?
While investors have tended to shy away from office assets in many global markets since the pandemic, office has maintained its leading share in the mainland China investment market. Our data shows that office investment represented 55% of the total all-property-sector investment volume in mainland China over the first three quarters of 2022, a slight increase from 48% in 2019.
What has changed recently is the type of office buyers in the market. Increasingly, there is demand from owner occupiers, especially in the TMT, financial services, energy, and logistics sectors. Together, they accounted for nearly 50% of the total office investment in mainland China from 2020 to Q3 2022 – a dramatic increase from a five-year average of only 18% pre-Covid.
The large supply of newly completed office buildings, especially in Shanghai and Shenzhen, offers a good opportunity for end-users to acquire their own office buildings. In addition, as some of these local developers are heavily indebted, they are much more willing to offer a reasonable price for a quick return of capital. At the same time, these end users face less competition from traditional institutional investors, who are currently facing various headwinds such as rising vacancy rates, softening rentals, and the increasing cost of finance.
Interestingly, these end-user buyers appear to have a higher “purchasing power” than traditional investors, as they typically value the quality and location of a building over price. For illustration, our data showed that within the urban area of Shanghai, the top 10 highest-priced office transactions (by unit price) recorded in the first three quarters of 2022 were all by owner occupiers. Cushman & Wakefield capital markets team facilitated two office deals purchased by self-use buyers, one in Shanghai and another in Beijing.
While in the past our clients typically came from institutional investment companies, we are now seeing an increasing number of end-users expressing their interest in quality office assets, and we expect this to continue in the near future.
These opinions are the author’s own and do not necessarily reflect the views of Cushman & Wakefield. To find out more about how Francis Li views opportunities in Greater China, click his profile and get in touch.
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