New CBRE China chief 'upbeat' on prospects

CBRE, the world’s largest commercial real estate services firm, is celebrating twin anniversaries this year — its 40th year of doing business in Hong Kong and its 30th year on the Chinese mainland.

Late last month, the property consultancy firm appointed Alan Li as president of CBRE China.

Still in his early 40s, Li is an 18-year veteran of the real estate industry, with extensive experience in office leasing and major real estate investment deals valued at more than US$10 million each.

Li, who holds an MBA from Fudan University, joined CBRE China three years ago as its managing director of capital markets after working for 12 years at JLL, another global property services provider. So far this year, his CBRE Capital Markets team chalked up more than 50 major real estate investment deals in China, with transaction value totaling more than 40 billion yuan (US$5.8 billion).

Born into a military family, Li is a true believer in diligence, discipline and integrity. During an exclusive interview last week with Shanghai Daily, he shared some of his thoughts on the rapid development of commercial real estate in China and its prospects going forward.

Q: How would you describe China’s commercial real estate investment market over the past decade?

A: It has witnessed notable growth since 2010 and reached its first major milestone in 2016, when overall transaction value of en-bloc real estate investment deals doubled from a year earlier to a record 180 billion yuan. Last year, the record rose to about 230 billion yuan.

This phenomenal expansion was fueled by the rapid increase in investment grade commercial properties in major Chinese cities, particularly Shanghai and Beijing. Back to 2003 or 2004, for example, if a multinational company was seeking, say, 5,000 square meters of Grade A office space in Shanghai, there might have a maximum seven to eight options on both sides of the Huangpu River. In 2012 or 2013, by contrast, companies with a similar demand would be bombarded with 30 or 40 choices in various locations, including downtown, decentralized areas as well as business parks. Too often, it could take a whole week or so to accompany the client on property viewing trips.

Q: How would you evaluate the market’s performance this year?

A: In general, the country’s real estate investment market has been going pretty much in line with our earlier expectations for Shanghai and Beijing, which together comprise the lion’s share. Both are performing quite well.

In Shanghai, en-bloc real estate investment deals totaled 99.5 billion yuan during the first 11 months of the year, and we expect the annual figure at last year’s level. Beijing likely will show moderately higher transaction value compared with 2017. Notably, in mid-November, CapitaLand, in conjunction with Singapore’s sovereign wealth fund GIC, acquired Shanghai’s tallest twin towers on the North Bund for 12.8 billion yuan, the largest deal of its kind in the city by an overseas investor in terms of both gross floor area and value.

Q: Who are the most aggressive buyers of commercial real estate, and what kind of properties are most popular with investors?

A: In terms of transaction value, developers and real estate funds account for 47 percent and 19 percent of the total, respectively. They were the most active investors in China during the first three quarters of this year. They were followed by 14 percent corporate buyers and 7 percent institutional investor, according to our data. In terms of capital sources, foreign buyers have been extremely active this year, far outperforming their domestic counterparts, with probably over 70 percent share in the core asset bracket.

As to property types, offices remained the most sought-after assets, while retail developments, hotels and logistics projects were also attractive to investors.

Q: As China’s two largest investment markets for commercial real estate, what are the similarities and differences between Shanghai and Beijing?

A: Both are gateway cities and mature markets for global real estate investors. However, in terms of both market vitality and transaction value, Shanghai outstrips Beijing and is more attractive to foreign buyers.

As far as property types, deals in Beijing are almost all confined to offices, retail malls and hotels. Shanghai boasts more diversified offering, with logistics projects and mixed-use developments also popular.

Q: What are the future prospects of the commercial real estate investment market in China?

A: We remain upbeat about prospects and expect to see a more vigorous market in 2019. On one hand, an increasing number of participants, institutions and capital will likely be at play amid an abundant stock of tradable real estate assets in the market. According to our forecast, China’s investment grade real estate assets will grow to US$4.2 trillion by 2020, indicating huge potential for future growth because only 230 billion yuan worth of real estate assets were traded in 2017.

On the other hand, we continue to see a number of positive factors, such as continuously improving infrastructure, accelerating urbanization, cross-regional population flows and consumption upgrading. They will further drive the country’s commercial real estate investment market in the years ahead. That’s particularly true for core areas like Shanghai, where the economy maintains its vibrancy with concentrated resources of industry, technology, capital and talent.

The fact that landlords of office towers here are often renewing leases with tenants every three years instead of 10 years or so, which is quite common in London, also suggests there is enough room for future growth.

Q: Any suggestions for investors?

A: Shanghai and Beijing will remain the two leading markets for commercial real estate investment, with a combined 60 percent share, while a group of six “high-potential” markets, namely Guangzhou, Shenzhen, Chengdu, Chongqing, Tianjin and Wuhan, are expected to jointly contribute 20 percent.

For long term investment, say the next 10 to 15 years, we suggest investors pay more attention to urban renewal projects in first-tier cities, to “high-potential” second-tier cities of Chengdu, Chongqing, Wuhan and Tianjin, and to the Xiongan New Area and Belt and Road Initiative-related opportunities.

Q: Chinese investors were a major buying force in overseas real estate markets over the last couple of years. How has China’s latest stance on capital outflows affected the buying spree? What is CBRE’s response to that changing scenario?

A: Chinese investors have slowed their pace in outbound real estate investment this year after the National Development and Reform Commission included real estate and hotels on its list of “sensitive” sectors for offshore investment. That means any deals in those areas could face great scrutiny.

In the meantime, we are seeing an increasing number of Chinese companies expressing interest in making outbound investment in Belt and Road countries, from Southeast Asia, India and the Middle East to Eastern Europe and Africa. We are actively helping these companies to find suitable projects, most involving between tens and hundreds of millions of yuan. The focus is mainly on infrastructure, industry and logistics, warehousing and data centers.

Q: As the newly appointed president of CBRE China, do you have any specific plans to strengthen your company’s local presence?

A: It’s still early days. Right now, my immediate priority is people. I’m going to be spending more time with the 7,400 staff members across China, hearing their thoughts and learning from their experience.

I will definitely stay keen on expansion opportunities, though at this moment I haven’t come up with any detailed plan. One thing I am certain about is that CBRE China will maintain its strong momentum and keep growing its business and team at an even faster pace.

To facilitate that growth, I want to better leverage our global expertise that either fits or is adaptable to the China market and to improve our services to raise client satisfaction.