Investment Market Driven by SOEs and Private Investors, Logistics Sector to Remain the Focus
- The central government’s introduction of the supportive “517” policy in May 2024 prompted Greater Bay Area (GBA) cities to implement a range of relaxation measures, in turn spurring housing market activity, with primary market home sales rebounding in June
- Total investment volume in the GBA commercial real estate (CRE) market reached RMB11.9 billion in 1H 2024, accounting for 17% of total Chinese mainland CRE investment volume in the period
- The GBA investment market was driven by state-owned enterprises and private investors in 1H 2024, with the logistics sector likely to remain sought-after due to capital appreciation potential
Cushman & Wakefield today published its Greater Bay Area Residential and Investment Market 1H 2024 Review and Outlook. GBA primary market residential sales slowed in 1H 2024 compared to the same period last year, under the continuing global high interest rate environment. However, market sentiment strengthened following the introduction of supportive housing policies in May. The CRE investment market (large-sized deals at >RMB100 million) was primarily driven by state-owned enterprises and mainland investors.
Looking ahead, the central government stated at the Third Plenary Session in July 2024 that municipal governments will be granted greater decision-making authority to regulate the real estate market. This is expected to bring greater momentum to the market, thereby supporting a recovery in residential transactions and price stabilization in 2H 2024. The central government stated at the Session that it will lift restrictions on the market, while also ensuring effective regulation, as well as leveraging the market’s role by fostering a fairer environment for private enterprises and foreign companies to participate in economic and industry development. We can expect this to bring greater market vitality and to benefit the property market in the long run. In the investment market, we can anticipate that investors will continue to pay attention to the logistics sector, given the sector’s strong demand and stable rental returns.
GBA Residential Market
The GBA primary residential market recorded approximately 133,000 transactions in the 1H 2024 period. This performance was down 15% h-o-h and 40% y-o-y, in part due to the relatively high base of comparison from 1H 2023 amid the impetus of the border reopening. However, the central government’s implementation of the “517” new housing policies in mid-May — including the cancellation of the new home loan rate lower limit, lowering of the individual housing provident fund loan rates, and the adjustment of the minimum down- payment ratio — helped to bolster sentiment in the market. In turn, primary residential transactions grew by 19% in June over the prior month to nearly 29,000 units, higher than the average monthly transaction volume in 2H 2023 and reflecting solid end-user demand in the GBA residential market.
Alva To, Cushman & Wakefield's Vice President, Greater China & Head of Consulting, Greater China, said, “At the recent Third Plenary Session, the central government granted greater decision-making power to municipal governments to regulate the real estate market, and proposed a series of measures to boost the economy, including the intention to lift restrictions on the market while ensuring effective regulation and to relax different economic control measures. Coupled with the earlier implementation of the “517” supportive housing policy, we believe that GBA residential transaction volume will gradually expand in 2H 2024. We expect average monthly transaction numbers in 2H 2024 to reach around 28,000 to 30,000 units, potentially bringing the 2024 total annual first-hand residential transactions to 300,000 to 313,000 units, a drop of 17% to 20% y-o-y, with the decline front-loaded in 1H 2024.
“On the other hand, connectivity between GBA cities has been greatly strengthened given the ongoing improvement in the transportation network in recent years, including the high-speed rail, Hong Kong-Zhuhai-Macao Bridge and Shenzhen Zhongshan Passage. This will help drive more Hong Kong and Macao residents to buy properties in GBA cities. Housing price differences between Hong Kong and mainland cities also make GBA properties attractive to some Hong Kong people, especially for those who find Hong Kong purchase entry prices too high. Furthermore, the Chinese mainland has recently introduced guidelines to facilitate Hong Kong and Macao residents to take domestic mortgage loans for GBA properties, with RMB funds remitted for mortgage loan payments exempted from the remittance limit. As Hong Kong continues to integrate with the GBA, we expect to see increasing buying interest from Hong Kong residents, supporting a more stable outlook for the GBA residential market."
As for residential prices, although overall primary home prices are more swayed by the quality level of newly launched projects, first-hand residential prices in the nine GBA mainland cities rose and fell in a roughly 50–50 split in 1H 2024. For secondary home prices, using Shenzhen as an example, the Cushman & Wakefield Shenzhen mid-to-high-end secondary home price index fell by 1.9% in 1H 2024. Looking ahead, we believe the central government’s active relaxation of housing cooling measures, combined with the positive messages on the economy released in the Third Plenary Session, will help to support market sentiment and price stability in the GBA during 2H 2024.
GBA CRE Investment Market
Overall investment momentum in 1H 2024 slowed compared to last year in the face of continuing high global interest rates and foreign borrowing costs. The GBA CRE investment market (large-sized deals at >RMB 100 million) recorded 26 large transactions totaling RMB11.9 billion in the 1H period, accounting for about 17% of the overall Chinese mainland investment market. Of the 26 transactions, 23 were at less than the RMB1 billion mark, with some involving discounted deals. The GBA commercial property investment market continues to focus on the two mainland first-tier cities, Shenzhen and Guangzhou, recording total transactions of RMB6.3 billion and RMB5.6 billion respectively in 1H 2024.
In terms of buyer category, the GBA commercial real estate investment market is dominated by state-owned enterprises and domestic investors. Domestic capital accounted for 99% of the GBA CRE market transactions in 1H 2024, with overseas buyers and institutional investors remaining conservative. By property type, the office/R&D office sector continued to take the largest share of the market, accounting for more than 33% of the total transaction consideration, supported by attractive pricing and hence allowing end-users and capital-rich investors to bottom-fish. Mixed-used assets took a 30% share of total consideration and industrial/logistics properties 17%.
Charli Chan, Cushman & Wakefield’s Deputy Managing Director, Capital Markets, China, commented, “Looking to 2H 2024, of the different sectors, we believe that logistics assets are still the most attractive for growth potential. Taking Guangzhou, Foshan, Shenzhen and Dongguan as examples, the cap rate of logistics properties in these GBA cities is similar to that of Shanghai and Beijing, at the level of around 5%. However, logistics vacancy rates in Foshan, Guangzhou, Dongguan and Shenzhen stood at 1%, 4%, 7% and 8%, respectively, far lower than the 19% of Shanghai and Beijing. In fact, with the ongoing enhancement of transportation connectivity across GBA cities, coupled with growing warehousing demand from 3PLs driven by cross-border e-commerce expansion and increasing last-mile logistics activity in the South China region, the growth potential of the GBA logistics sector cannot be overlooked. As well, the new warehouse supply pipeline in Shenzhen and Guangzhou remains limited, and we can anticipate that future demand will spill over to surrounding areas such as Foshan and Dongguan. Hence, we believe that the GBA logistics sector will continue to attract investors’ attention into the future.”
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2023, the firm reported revenue of $9.5 billion across its core services of valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com
