Chinese real-estate investors made a name for themselves abroad in 2013, picking up big-ticket projects from New York to London, and that momentum is poised to pick up this year.
The Highly Desired Los Angeles Skyline
“In the late 1980s, we noticed every second deal was done by the Japanese, and in the 1990s, it was investors from the Middle East,” said Alastair Hughes, chief executive officer of Asia Pacific at property consultancy Jones Lang LaSalle JLL +1.22%. “We’re seeing the beginning of such a wave in China.”
Chinese outbound commercial real-estate investment is estimated to exceed $10 billion this year, after it doubled to $7.6 billion last year from 2012’s $3.3 billion, according to data from Jones Lang LaSalle. Rival brokerage Colliers International is more bullish, saying it expects Chinese investors to spend at least twice as much on overseas property assets this year as last year.
“Chinese investors are very active in every major market in the world, and part of that has to do with government policy on overseas investment becoming less restrictive,” Mr. Hughes said.
Aside from the stronger yuan, which makes purchases abroad cheaper, Chinese investors also are heeding the old adage don’t put all your eggs in one basket.
Among some of last year’s higher-profile investments were Shanghai’s Fosun International 0656.HK -0.20% purchase of the Chase Manhattan Plaza in New York for $725 million in October and state-owned conglomerate Greenland Holding Group’s 70%stake in Brooklyn’s $5 billion Atlantic Yards project. Greeland also paid $1 billion for a piece of land in Los Angeles on which it plans to build a hotel, office units, serviced residences and high-end homes.
Chinese insurers could also be more active purchasing real estate abroad this year, after Ping An Insurance Group’s acquisition of Lloyd’s of London building last summer.
While the New York, London and L.A. markets enjoy strong demand and deep liquidity, they also have some of the world’s highest real-estate prices. Many investors aren’t limiting themselves to those cities and are looking to park their money in other markets in Asia Pacific and Europe.
“They have been focusing on the more transparent real-estate markets, and for Asia’s equivalent, that would be Singapore, Sydney and Hong Kong,” Mr. Hughes said. Institutional investors are also looking for assets in places such as Brussels, Poland and Manchester, England, he added.
Office assets are the most popular targets, accounting for 85% of the $7.6 billion worth of commercial real estate bought last year, Jones Lang LaSalle said, followed by hotel and retail assets.
But the Chinese aren’t the only ones flush with cash and looking for assets abroad. The U.S.-based nonprofit research organization Urban Land Institute listed Singaporean sovereign wealth funds and South Korean institutional players as competitors continuing to raise allocations for real estate investment in a recent report.
Asian investors “will be seeking to exploit the big differences between property cycles in Asia, the U.S. and Europe in order to achieve better yields,” said Simon Lo, executive director of research in Asia at Colliers International.
Competition is heating up, with a limited number of prized assets.
“In the Asia Pacific market, we noted that for every one seller, there are seven buyers,” Mr. Hughes said. “It’s an extremely active market and it’s difficult to find good quality stock.”