Shanghai leads Asia Pacific cities in cross-border investments

Despite uncertainty caused by trade tensions, overseas investors continue to spend a record amount in Shanghai’s commercial real estate.

December 11, 2019

Shanghai was the largest recipient of cross-border real estate capital among Asian Pacific cities in the first three quarters of this year with a total of US$5.9 billion invested by foreigners, a 235 percent rise from the same period a year earlier, according to the latest data from JLL.

The most significant cross-border transaction in Shanghai this year was Canada’s Brookfield Asset Management acquiring Greenland Huangpu Center - a 1.6 million square foot mixed-use development in Shanghai - for US$1.55 billion. Other notable purchases by foreign investors in 2019 include Keppel Capital’s purchase of Yifang Plaza, a recently completed office in the Hongku submarket, and the acquisition of a majority stake in Pufa Tower, an office in the Lujiazui financial district, by a JV between AEW and Capital Land.

Singapore-listed City Developments Ltd also acquired a Shanghai commercial asset and took a stake in a Chinese developer in May.

“At present, Shanghai’s real estate market remains one of the most dynamic in the world with a proven ability to effectively embrace changes in technology, absorb rapid economic growth, and improve global connectivity,” says JLL Global Research Director, Jeremy Kelly.

The city’s rise as an investment destination has been rapid. It was ranked as the world’s seventh-largest city recipient of cross border investments as at the end of the third quarter last year, but within 12 months, it leapt four places to beat the list’s mainstays like New York and Hong Kong, taking the third spot globally after Paris and London.

A confluence of global developments and local efforts has helped to fast-track the city’s investment momentum.

China is continuing its effort to integrate its financial markets with the global economy and to allow the full convertibility of its currency gradually, says Daniel Yao, Head of Research, JLL China.

Recent initiatives include the Hong Kong-Shanghai and Hong Kong-Shenzhen Stock Connects, which allow foreign investors to access Chinese stock markets. The Bond Connect was introduced in July 2018 to provides overseas access to the mainland’s Interbank Bond Market.

Meanwhile, China has adjusted its deleveraging campaign. China launched the campaign, which includes money-market rate hikes to deter borrowing and crackdowns on wealth management products, in late 2015 to curb the excessive borrowings by local governments, financial institutions, businesses and individuals. In mid-2018, China slowed the pace of the campaign amid the U.S.-China trade conflict.

Liquidity increases

Still, the deleveraging campaign has helped to improve liquidity as developers and landlords sold real estate to pare down debt. The changing hands of assets have helped Shanghai moved up JLL’s rankings of most liquid cities by the third quarter of this year. The city came in at sixth place globally this year with US$14.4 billion worth of deals transacted, up from the eighth place in 2018.

Another contributing factor to Shanghai’s lure is its pace of infrastructure developments. The city is boosting connectivity through railways and expressways amid booming growth in key industries such as technology and e-commerce. These expanding sectors have also supported the office leasing market.

Kelly says Shanghai’s rapid expansion of its already extensive metro system, puts the city alongside London’s on-going Crossrail plans and France’s ambitious Grand Paris initiative as top cities with a robust infrastructure for both urban mobility and intercity connectivity.

Belt and Road Momentum Continues

Third-party logistics firms and manufacturers have also been active in Shanghai. While trade tensions between China and the US are impacting market sentiment, this has yet to impact leasing activity materially, says Yao.

Going forward, China’s “Belt and Road” initiative will expand Shanghai’s attraction for global players as it becomes one of the financing and administrative centres for projects that will span as many as 60 countries across Asia, the Middle East, Europe and Africa. Between 2013 and June 2018, the total value of projects funded by China in the initiative reached US$256 billion, according to a report by the Washington-based American Enterprise Institute.

Shanghai’s recent developments are set to propel the city from being an industrial centre in the 1950s to become one of the elite group of Established World Cities within the next five years, JLL predicts. This top-tier group currently includes New York, London, Tokyo, Paris, Hong Kong, Singapore and Seoul.