H1 real estate investment plummets in Shanghai

Cao Qian
Fundamentals remain challenging in the office and retail markets given excess supply, weakened demand and falling rents, industry research finds.
Cao Qian

Real estate investment in Shanghai plunged in the first half of 2020 to around 40 billion yuan (US$5.7 billion), with owner occupiers being active players, global property adviser Savills said in a recent report.

Between April and June, 11 en bloc deals valued at 14.8 billion yuan were concluded in the city, bringing the six-month total to 39.8 billion yuan, a 48-percent drop from the first half of 2019.

"Traditional short-term value-added investment strategies are becoming increasingly difficult to underwrite as the market fundamentals remain challenging in the office and retail markets given excess supply, weakened demand and falling rents," said James Macdonald, head and senior director of Savills China research. "For the rest of this year, transaction volumes are expected to pick up as long as motivated sellers adjust pricing to meet the needs of investors who are currently sitting on the sidelines."

By property type, offices continued to be the most sought-after among investors, which accounted for around 55 percent of total value of the 11 deals reached in the second quarter. The logistics sector remains a popular option, with long-term structural demand coming from the growing consumer market as well as the growth of e-commerce while investors are also paying increasing attention to niche sectors such as data centers, Savills data showed.

By investor type, owner occupiers contributed 32 percent of the total value registered in the first half, with the majority coming from the financial industries. In one of the most recent and typical deals, Bank of Shanghai agreed to purchase the T2 building in the Greenland Bund Center for some 4.85 billion yuan.

"Real estate investment deals should fall below the 100-billion-yuan mark in 2020, a level that had been reached in Shanghai over the past four years," said Jim Yip, head of capital markets for JLL China and East China. "And domestic investors, particularly insurance companies and owner occupiers, are expected to become the dominant force in the investment market."

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