China to take largest share of Asia Pacific real estate equity

China will become the largest recipient of Asia Pacific real estate private equity capital by 2020, taking more than one fourth of the total investment in the region, the latest report released by international property services provider CBRE has found.

Out of the estimated US$53 billion of real estate private equity capital to be deployed into the real estate asset class across the region in the coming three years, China will receive US$14 billion, according to CBRE.

About US$42 billion of capital was raised by Asia Pacific-focused closed-end real estate funds between 2014 and the third quarter of 2017, which translates to around US$116 billion (post-leverage) of purchasing power, CBRE data showed.

Among all, some US$63 billion, or 54 percent, of capital has been deployed since then, with Australia, Japan and China receiving the majority of it. The remaining US$53 billion will need to be deployed within the next three years since real estate private equity funds typically have an investment period of three to four years.

While many funds have under-allocated in China due to concerns of economic slowdown, clear signs of economic stabilization are expected to encourage the return of funds to first-tier cities and beyond to seek value-added and opportunistic investment opportunities, the report said.

"The Chinese en-bloc investment market will remain active in 2018 with investors continuing to show strong interest in decentralized areas and emerging submarkets in first-tier cities where fundamentals remain solid," said Alan Li, managing director of capital markets, CBRE China. "Prime assets in core areas of second-tier cities such as Chengdu, Hangzhou, Nanjing and Wuhan are expected to attract greater attention."

In terms of asset type, offices will still be considered the top choice for most investors, while commercial assets such as shopping centers and logistics facilities, where operational expertise is key to success, will continue to be considered favorably.