China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

Most international institutional investors we surveyed still remain positive and will continue investing in offices, logistics and data centres China Commercial

Real Estate Investment knightfrank.com.cn Market June 2020 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

01 Impact of COVID-19 to Real Estate Market in China 04 TABLE 02 Chinese Mainland Investment Market 09 03 Beijing Investment Market 17 04 Shanghai Investment Market 23 05 Guangzhou Investment Market 29 06 Shenzhen Investment Market 35 OF 07 Summary & The Future Outlook 41 CONTENT

2 3 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

GLOBAL ECONOMIC GROWTH PROJECTION

According to IMF’s report, the COVID-19 Table 1. Real GDP, annual percent change pandemic will severely impact growth across all regions. Countries / Regions 2201919 2020 2021

The global economy is projected World Output 2.9 -3.0 5.8 to contract sharply by 3 % in 2020, Advanced Economies 1.7 -6.1 4.5 much worse than during the 2008-09 financial crisis. United States 2.3 -5.9 4.7

However, output of China is expected Euro Area 1.2 -7.5 4.7 to have better performance than that of Germany 0.6 - 7.0 5.2 advanced economies. France 1.3 - 7. 2 4.5 China’s GDP growth 2020 has been Italy 0.3 -9.1 4.8 cloudy, however a sharp rebound in H2 2020 is possible. Spain 2.0 -8.0 4.3

Japan 0.7 -5.2 3.0

United Kingdom 1.4 -6.5 4.0 01. Canada 1.6 -6.2 4.2 The global Other Advanced Economies 1.7 -4.6 4.5 economy is projected IMPACT OF COVID-19 to contract sharply by Emerging Markets and Developing Economies 3.7 -1.0 6.6 TO REAL ESTATE 3% Emerging and Developing Asia 5.5 1.0 8.5 in 2020 China 6.1 1.2 9.2 MARKET IN CHINA India 4.2 1.9 7.4 ASEAN-5 4.8 -0.6 7.8

Emerging and Developing Europe 2.1 -5.2 4.2

Russia 1.3 -5.5 3.5

Latin America and the Caribbean 0.1 -5.2 3.4

Brazil 1.1 -5.3 2.9

Mexico -0.1 -6.6 3.0

Middle East and Central Asia 1.2 -2.8 4.0

Saudi Arabia 0.3 -2.3 2.9

Sub-Saharan Africa 3.1 -1.6 4.1

Nigeria 2.2 -3.4 2.4

South Africa 0.2 -5.8 4.0

Low-Income Developing Countries 5.1 0.4 5.6

Source: IMF

4 5 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

CHINA’S ECONOMIC INDICATORS The surveyed enterprises indicated the Do surveyed enterprises enjoy the following negative impact of this epidemic on their preferential policies on financing provided by business the government and financial institutions? According to the data from National Table 2. Break Down of GDP in China for Q1 2020 Bureau of Statistics of China (NBS), in 1% 1% Q1 2020, due to the COVID-19 outbreak, 3% Absolute Amount Y-O-Y Growth 12% 4% 1% China’s GDP was down 6.8% YoY. (Hundred million RMB) (%) 1% Q1 Q1 The added value of the secondary 11% GDP 206,504 -6.8 industry was down by 9.6%, which was 37% the largest decline of three industries. Primary Industry 10,186 -3.2

73,638 -9.6 24% At the same time, in tertiary industry, Secondary Industry hospitality, F&B and retail were heavily Tertiary Industry 122,680 -5.2 impacted. However, telecom, software, Agriculture, Forestry, Fishing 10,708 -2.8 IT have maintained double-digit 79% growth. #Industry 64,642 -8.5 Manufacturing 53,852 -10.2 26%

Construction 9,378 -17.5 None Slight Moderate Significant No Other Appropriate Reduction of the Interest Rate on Loans and the Cost of Financing Corporate Wholesale & Retail 18,750 -17.8 Severe Loans Transportation, Warehousing, Post 7,865 -14.0 Financing subsidies and Financial Increasement of the Discount Interest for Loans quantities of Credit Loan, Medium andLong-term Loans Hospitality, F&B 2,821 -35.3 Reduction of Financing Premium Roll Over or Renew the Loan Finance 21,347 6.0 Source: Knight Frank Research Source: Knight Frank Research Real Estate 15,268 -6.1

Telecom, Software, IT 8,928 13.2

Leasing & Commercial Service 7,138 -9.4

Other Service 39,660 -1.8 Do surveyed enterprises find the preferential Do surveyed enterprises have the confidence to policies helpful to them? tide over difficulties with the help of government Source: National Bureau of Satatics, Yearbook policies?

6% 7% 17%

29%

16% GOVERNMENT’S STIMULUS TO 43%

26% CHINA ECONOMY

28% Some monetary and fiscal policies have and financing incentive have been are helpful to enterprises and they can 28% been accessed by the government to implemented to help heavily impacted tide over difficulties with the help of support and stimulate the economy. sectors to recover from the epidemic. government preferential policies.

Central bank of China has reduced Very Helpful Helpful Moderate Very Confident More Confident Neutral interest rate or deposit-reserve ratio. According to Knight Frank’s survey with Lack of Confidence some landlords and tenants, majority of Not that Much Helpless

Some supportive policies including respondents think that the preferential Source: Knight Frank Research Source: Knight Frank Research tax relief, rent reduction, subsidies policies enjoyed by their enterprises

6 7 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

IMPACT TO REAL ESTATE MARKET

Some companies’ expansion and China is looking to “new infrastructure” Hotels are among the worst performing relocation plans have been suspended projects to weather the COVID-19- sectors. We have seen hotel business in CBD office market due to COVID-19. plagued financial storm and boost the dropping significantly in revenue, all However, office leasing activity started country’s economy in the long term. indicative data were at historic lows to pick up in Beijing and Shanghai, but Investment in new infrastructure and recovery has not being seen so far. large-size deals were absent. New leases including 5G, artificial intelligence, Nevertheless, although hotels are going recorded a 3-5% drop in effective rent industrial internet, IoT and big data are through a downturn, opportunities in first tier cities in China and many pushing the development of business for conversion to rental apartment are tenants have received 1-2 month rent park / science park and data center emerging. relief and incentives from landlords and sector. local governments. COVID-19 has boosted online shopping. The COVID-19 pandemic has driven As a result, demand for logistics In contrast to the offices in CBD areas, sales of e-commerce. Nevertheless, so warehouse space, as well as data performance of business park was far nearly all the shopping centers have centers are surging. Most international relatively stable due to the stable resumed business. The consumption institutional investors which we business growth of TMT occupiers. has almost recovered to the pre- surveyed still remain positive to pandemic level. continue investing in offices, logistics and data centres. 02. CHINESE MAINLAND INVESTMENT MARKET

8 9 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

CHINESE MAINLAND ECONOMIC CHINESE MAINLAND OVERVIEW TRANSACTIONS – NUMBER

1.4bn 104 RMB20,650.4bn RMB7,858bn In the past decade, the annual number 4.0% yoy 6.8% yoy 19.0% yoy of major property transactions Fig 2. Major property transactions in Chinese Mainland by number in Chinese Mainland real estate Transaction Number investment market has reached an 1,500 average number of 877 a year, and in the 1,387 1,413 Permanent Population Consumer Price Index Gross Domestic Product Total Retail Sales 4 years of 2011, 2014, 2015 and 2016 they 1,182 (end 2019) (Q1 2020) (Q1 2020) 1,022 Consumer Goods had averaged more than 1,000. 1,000 902 823 (Q1 2020) 769 726 655 571 In 2019, there were 726 transactions 500 recorded, down 11.8% YoY while the RMB11,691 RMB12,268bn 59.4% 16.1% yoy 193 average transaction value sharply 3.9% yoy 5.2% yoy rose 41.2% YoY to RMB 0.38 billion per 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 transaction. In Q1 2020, there were 193

major property transactions recorded, Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research Per Capita Disposable Added-value of Added-value of Tertiary Cumulative Growth in with average transaction volume RMB Income (Urban) Tertiary Industry Industry as % GDP Fixed Asset Investment 0.37 billion per deal. (Q1 2020) (Q1 2020) (Q1 2020) (Q1 2020)

RMB2,196bn RMB1.9bn RMB3,238bn RMB3,336.3bn 7.7% yoy 42.5% yoy 0.7% yoy 11.4% yoy CHINESE MAINLAND TRANSACTIONS – SECTOR BY VALUE Real Estate Investment Foreign Direct Investment Value of Import Value of Export (Q1 2020) (Q1 2020) (Q1 2020) (Q1 2020) Office transactions have been leading, Source: China National Bureau of Statistics with annual transactions averaging Fig 3. Breakdown of major property transactions in Chinese Mainland more than RMB 105 billion or 47.5% of by value the total value over the past decade, Office Industrial Retail Hotel Apartment followed by retail properties averaging CHINESE MAINLAND RMB 68 billion which had taken up RMB(Billion) 31.7% of total value. 300

TRANSACTIONS – TOTAL VALUE 250 In the past decade, the annual major Transaction value of industrial properties have reached another level 200 property transactions in Chinese Fig 1. Major property transactions in Chinese Mainland by value Mainland real estate investment market in the last 3 years, rising sharply from Transaction Value 150 have reached an average value of RMB about RMB 10 billion to over RMB 36 206 billion, with annual transaction RMB(Billion) billion per year and accounting for 15% 100 value exceeding RMB 250 billion in each 300 of total value from 6.1%. 278 268 50 of 3 years in 2015, 2016 and 2019. 260 250 245 223 In 2019, office transactions accounted 0 205 208 200 for 50.9% of annual major property 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 In 2019, the total transaction value 186 achieved about RMB 278 billion, up 158 160 transaction value in Chinese Mainland, 150 Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 24.5% YoY and it was also the biggest retail property transactions accounted Source：RCA, Knight Frank Research transaction amount in the past decade. 100 for 31.6%, industrial properties for 11%, In Q1 2020, the total transaction volume 71 and hotels for 6.5%. In Q1 2020, the stood at around RMB 71 billion. 50 mainland real estate investment market recorded 57.9%, 27.1%, 10.9% and 4% of 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 the transaction value of office, retail property, industrial property and hotel Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research transactions respectively.

10 11 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

CHINESE MAINLAND CHINESE MAINLAND KEY TRANSACTIONS – SECTOR BY NUMBER TRANSACTIONS

Retail property transactions accounted Table 3. Chinese Mainland Key Transactions for the largest share by number, on Fig 4. Breakdown of major property transactions in Chinese Mainland average of about 42% of major property Deal Amount by number Date 2Project City Property type Buyer Seller transactions in the mainland market RMB (Billion) Office Industrial Retail Hotel Apartment over the past decade. Offices accounted Shanghai Port City 1,500 Dec 2018 Shanghai Office, Retail CapitaLand, GIC SIPG 12.80 for about 33.3% and industrial Mixed-Use Project properties for about 16.24%. Shenzhen OCT Tower Shenzhen Overseas 1,000 Apr 2019 Shenzhen Office China Life 12.00 (60% of equity) Chinese Town Co., Ltd. In 2019, the share of retail property and office transactions was 41.8% and Greenland Huangpu Jul 2019 Shanghai Retail Brookfield AM Greenland 10.56 34% respectively, up 17.7 percentage 500 Riverside points and 14.1 percentage points Mar 2019 Changtai Plaza Shanghai Office, Retail Blackstone CJ Group 10.02 YoY. The increasing share of retail 0 and office assets were not only related Office, Retail, Partners Group, Gaw 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Dec 2018 Sanlitun Yingke Centre Beijing China Visonary 10.50 to the increase of their transaction Apartment Capital Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 number, but also resulted from the ： Source RCA, Knight Frank Research Kun Square, Feb 2019 Beijing Retail ByteDance ZK Investment 9.00 declining proportion of industrial Great Bell Temple property transaction number. The Shanghai Mapletree number of major property transaction In 2019, industrial properties accounted 34.2%, 41.8%, 17.2% and 6.3% of the Nov 2019 Shanghai Office, Retail Blackstone Mapletree Investment 8.25 Business City & Vivo City has fallen sharply in recent years as for about 17.3% of total transaction transaction number of office, retail more investors or original owners number, down about 24.5 percentage property, industrial property and hotel Singapore RECO have transferred assets in the form of points YoY. In Q1 2020, the mainland transaction respectively. Feb 2020 LG Twin Tower Beijing Office Changan Private LG Holdings 8.04 portfolios. real estate investment market recorded Ltd

T2 Building, China CITIC Prudential China Resources Land Dec 2019 Shenzhen Office 8.00 Resources Qianhai Plaza Life Qianhai Co., Ltd

Tianjin Urban China Resources Infrastructure Jan 2019 Tianjin Galaxy Tianjin Retail 7.93 Land Construction CHINESE MAINLAND BREAKDOWN Investment Group

Note: The major property transaction amount is for the past 24 months and calculated in terms of the actual transaction value The order of the transaction list is sorted by transaction value BY FIRST-TIER CITIES Source: RCA, Knight Frank Research

From 2016 to 2019, excluding land transactions, the share of major Fig 5. The share of major property transaction value in first-tire property transaction value in Beijing cities in 2016 and 2019 and Guangzhou had grown, while Beijing Shanghai Guangzhou Shenzhen those in Shanghai and Shenzhen had dropped. Beijing, in particular, had seen 2.3% 4.5% its share rising sharply, reversing the 9.6% 8.4% previous situation in which Shanghai accounted for more than half of the total 44.6% transaction value. 2016 2019 31.7% 56.4%

42.6%

Note: Data for transactions of USD 2.5 million or more in 2016 and 2019 Source：RCA, Knight Frank Research

12 13 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

CHINESE MAINLAND BUYER PROFILE CHINESE MAINLAND MAJOR SELLERS

By transaction value, private Table 4. Chinese Mainland Major Sellers investors were the key buyers in the Fig 6. Buyer composition of major property transaction market in Chinese Mainland market, but their Chinese Mainland Selling amount Average Price share has been decreasing since Ranking 2Seller Number of Projects Private Buyer REITS/Listed Company Institutional Buyer Foreign Buyer RMB(Billion) RMB(Billion) 2013.

10.0% 11.0% 9.8% 1 HNA Group 32 15 2 12.8% 11.8% 11.7% 14.2% 11.7% 14.0% 15.8% 2.7% 2.8% 6.6% 3.3% 3.9% 4.9% In 2019, private investors accounted 7.5% 5.2% 6.1% 4.0% 29.2% 2 SOHO China 22 14 2 20.2% for 39.4% of total major property 19.1% 26.0% 25.9% 26.7% 5.8% 3 YMCI (China) 22 27 1 transaction value, showing the 35.1% 33.9% 45.0% 40.8% decrease from 2018. 41.9% 4 Greenland Group 21 36 1

33.9% 5 Guangzhou Metro 19 3 6 The share of REITS/listed companies 67.1% 65.2% 58.0% 60.2% in the past decade has been on the 56.9% 6 China Oceanwide Holdings 15 2 8 45.7% 46.9% 39.4% 37.8% 38.4% rise. In 2019, they accounted for 31.0% 7 Thaihot Group 13 23 1 40.8% of the total transaction value.

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 8 Shanghai Int’l Port Group 13 2 6 In addition, the share of foreign Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Buyer' in RCA 9 CMIG 12 1 12 buyers has remained stable in the Source：RCA, Knight Frank Research past decade but peaked in 2019, 10 Partners Group 10 3 3 reached around 15.8%, due to the foreign buyers, private buyers and market, while the institutional Note: The transaction amount is the total for the past 24 months, sorted by transaction amount from high to low weakening RMB exchange rate. REITS/listed companies accounted buyers took up the least share. Source: RCA, Knight Frank Research for a similar share of the Chinese In Q1 2020, the transaction value of Mainland major property transaction CHINESE MAINLAND RELEVANT

CHINESE MAINLAND SELLER PROFILE POLICIES Table 5. Recent Relevant Policies on Real Estate Investment in Chinese Mainland first-tire cities

By transaction value, private and City 2Recent Relevant Policies on Real Estate Investment foreign sellers dominated the Fig 7. Seller composition of major property transaction market in Chinese Mainland market during The Foreign Investment Law (March, 2019) provides better market conditions for foreign investors to invest in China. Chinese Mainland the 9 years from 2011 to 2018. It is expected that foreign investors will maintain an advantageous position in major property investment and play an Private Seller REITS/Listed Company Institutional Seller Foreign Seller active role in the Beijing market. Beijing However, in 2019, the transaction On 2 August 2019, the Beijing Municipal Housing and Construction Commission issued a White Paper on Housing 15.4% value of foreign sellers accounted and Urban-Rural Construction Development in Beijing (2019), which aims to stabilise prices of land and housing and 33.3% 35.0% 34.4% 41.4% 40.4% 37.1% 13.2% firmly curb the demand for speculative housing investment. for the lowest share in the decade, 50.0% 48.2% 48.8% 52.4% for about 15.4%, a significant 1.7% Several changes coming into effect on 1 September 2019 optimise the criteria for regional headquarters 10.5% drop of 26 percentage points YoY. 10.1% identification, which enables more enterprises such as the Internet, digital and other emerging areas of light assets 13.5% 11.4% 33.0% 1.2% 10.5% This change was related to the 27.9% 8.3% 31.7% enterprises comply with the regional headquarters recognition, enjoy financial subsidies and tax relief and other 11.6% 11.4% 10.1% 25.9% 24.7% 14.3% policy preferences. weakening RMB exchange rate. 10.4% 15.2% On 6 August 2019, the State Council approved the establishment of a new area of China (Shanghai) Free Trade Pilot 45.7% 37.7% 38.4% In 2019, private sellers accounted 38.5% Shanghai Zone, and launched a number of active policies aimed at forming international business, cross-border financial 31.3% 31.7% 36.0% 32.9% 28.1% 25.9% for about 38.5% of the total 21% services, cutting-edge technology research and development, cross-border service trade and other functions, transaction value, and REITS/listed including the advance industry intelligent network link and new energy vehicles. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 companies accounted for 33%, the On Sep 12,2019, the municipal government put forward 26 concrete measures to propel foreign investment, aiming Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Seller' in RCA largest share in the past decade. Source：RCA, Knight Frank Research to broaden and deepen the scope of foreign investment. Notably, the stock, funds and Insurance markets have been opened up due to the widening or canceling of restrictions on the ratio of foreign equity. In Q1 2020, foreign sellers sellers each accounted for 25.9% Institutional sellers accounted for At the beginning of 2019, “The plan for key construction projects of 2019 in Guangzhou” was released. In terms of Ur- about 8% of the annual transaction accounted for the largest share of respectively. ban Renewal and Land Readiness, Guangzhou plans to invest RMB31.1billion to propel 52 projects across 11 districts. value in the past decade, and 13.2% transactions, at 48.2%, and REITS/ Guangzhou Financial policy is generally loose, but residential mortgages and corporate financing restrictions have not for 2019. listed companies and private been significantly relaxed. Since May 2019 housing enterprises continued to operate in the tightening financing environment, focusing on trust, foreign debt, development, loans and other areas.

14 15 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

City Recent Relevant Policies on Real Estate Investment

On August 18, 2019, the Central Committee of the Communist Party of China and the State Council issued the Opinions on Supporting the Construction of the First Demonstration Zone of Socialism with Chinese Characteris- tics in Shenzhen. According to the Opinion, Shenzhen will be strategically positioned as a global benchmark city with competitiveness, innovation and influence.

The Opinions support Shenzhen’s implementation of a more open and convenient management system for the introduction and entry and exit of foreign talents, the promotion of interconnection with Hong Kong and Shenzhen Macau financial markets and mutual recognition of financial (fund) products, the first test in promoting the internationalization of the RMB, and the exploration of innovative cross-border financial supervision. The policy aims to support Shenzhen to pilot the deepening of foreign exchange management reform, build free trade pilot zones with high standards and quality, and promote more international organizations and institutions to settle in Shenzhen.

In February 2020, the “Shenzhen 2020 Major Project Plan” was issued. In the plan, there are 122 projects for industrial parks, production lines, and R & D center. Also, there are 48 urban renewal projects and 37 headquarters projects.

03. BEIJING INVESTMENT MARKET

16 17 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

BEIJING ECONOMIC OVERVIEW BEIJING TRANSACTIONS – BY

21.54million 103.8 RMB746.2bn RMB271.6bn 3.8% yoy 6.6% yoy 21.5% yoy NUMBER OF DEALS

In the past ten years, the average number of major property transactions Fig 9. Major property transactions in Beijing by number Permanent Population Consumer Price Index Gross Domestic Product Total Retail Sales in Beijing real estate investment market Transaction Number (end 2019) (Q1 2020) (Q1 2020) Consumer Goods has achieved 212 deals per year, with 600 (Q1 2020) annual transaction number exceeding 350 in each of the 2 years in 2010 and 2016. 400 396 RMB653.9bn 87.6% 347 355 RMB19,349 7.1% yoy 323 4.8% yoy 4.8% yoy 257 There were 116 deals in 2019, which 200 185 142 was lower than the average annual 111 116 75 number in the past decade. However, 33 0 Per Capita Disposable Added-value of Added-value of Tertiary Cumulative Growth in The average transaction value per deal 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Income (Urban) Tertiary Industry Industry as % GDP Fixed Asset Investment increased sharply by 105.6% YoY to RMB (Q1 2020) (Q1 2020) (Q1 2020) (Q1 2020) 0.74 billion. Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research In Q1 2020, there were 33 major property 6.4% yoy 4.3% yoy RMB502.9bn RMB122.4bn transactions recorded in Beijing market, 8.4% yoy 4.4% yoy with average transaction volume RMB 0.8 billion per deal.

Real Estate Investment Foreign Direct Investment Value of Import Value of Export (Q1 2020) (2019) (Q1 2020) (Q1 2020) BEIJING TRANSACTIONS – SECTOR Source: Official Data BY VALUE

BEIJING TRANSACTIONS – TOTAL Office transactions took the lead, with the average annual transaction value Fig 10. Breakdown of major property transactions in Beijing by value accounting for more than half of the major VALUE property transactions in Beijing over the Office Industrial Retail Hotel Apartment past decade, or about 50.3% on average. Retail properties came the second, which RMB(Billion) In the past decade, the annual major had an average of about 35.4% of Beijing 100 property transactions in Beijing real Fig 8. Major property transactions in Beijing by value major property transaction value in the estate investment market have reached 80 Transaction Value past decade. Hotels ranked third, but the an average value of about RMB 48.6 average share was less than 10%. Lastly, the billion, with annual transaction value RMB(Billion) 60 average share of industrial properties and achieved highest point at RMB 86 100 apartments was less than 5%. billion in 2019. 86 40 80 70 61 In 2019, office transactions accounted for 20 In Q1 2020, the transaction value for 60 57 about 56.7% of the total major property 49 major property was RMB 26 billion. 43 40 41 40 transaction value, retail properties 0 31 29 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 26 accounted for about 32.2%, and the 20 remaining types of property assets Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 accounted for about 11%. In Q1 2020, only ： 0 Source RCA, Knight Frank Research 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 office and retail property transactions were recorded, with the transaction value

Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 accounting for about 87.7% and 12.3%, Source：RCA, Knight Frank Research respectively.

18 19 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

Deal Amount Date 2Project Property type Buyer Seller BEIJING TRANSACTIONS - SECTOR RMB (Billion)

BY NUMBER Jun 2018 New EBA Investments Office Postal Savings Bank of China EBA Investments 4.00

ICBC International After 2016, more investors or original Mar 2019 Glory Star Financial Tower Office Mapletree Investment 3.40 Holding Co., Ltd property owners transacted Beijing real Fig 11. Breakdown of major property transactions in Beijing by estate assets in the form of investment number Note: The major property transaction amount is for the past 24 months and calculated in terms of the actual transaction value The order of the transaction list is sorted by transaction value portfolio. The number of major Office Industrial Retail Hotel Apartment Source: RCA, Knight Frank Research property transactions of five types of 500 property assets, including office, retail property, industrial property, hotel and 400 apartment, declined significantly, but the transaction share of all types of 300 BEIJING BUYER PROFILE assets did not fluctuate significantly.

200 By transaction value, real estate In 2019, office transactions accounted investment market in Beijing used to be Fig 12. Buyer composition of major property transaction market for 47.4% of the total number of major 100 dominated by REITS/ listed companies property transactions in Beijing, in Beijing and private investors. But since 2012, Private Buyer REITS/Listed Company Institutional Buyer Foreign Buyer retail properties for 43.1%, hotels and 0 the share of REITS/ listed companies apartments for less than 10% each. In Q1 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 6.0% 7.7% 10.7% gradually increased. In 2019, REITS/ 15.6% 14.6% 6.0% 15.4% 16.5% 2020, office transactions accounted for 20.8% Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 3.9% 24.1% ： listed companies accounted for 32.6% 3.6% Source RCA, Knight Frank Research 17.9% 34.3% 66.7% of the total transaction number, 13.5% 14.6% 11.7% of total investment value, while private 8.5% 9.1% while retail properties for 33.3%. 55.2% 30.0% buyers accounted for only 19.6%. 47.3% 26.9% 51.3% 13.5% 35.4%

50.3% 44.3% 52.6% Foreign buyers accounted for the biggest 56.6% 3.7%

share of buyers in Beijing market in 32.6%

2019 over the past decade, Knight Frank 47.5% 51.8% 29.0%

40.7% BEIJING KEY TRANSACTIONS speculated that the shift was driven by 34.1% 34.4% 22.6% 18.5% 20.4% 19.6% 15.2% the weakening RMB exchange rate. 12.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Table 6. Key Transactions By the transaction value, in Q1, foreign Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Buyer' in RCA buyers were the major buyers in the Source：RCA, Knight Frank Research Deal Amount market, accounting for 55.2% of the Date 2Project Property type Buyer Seller RMB (Billion) transaction value, while REITS/ listed companies, private buyers and Office, Retail, Partners Group, Gaw Dec 2018 Sanlitun Yingke Centre China Visionary 10.50 Apartment Capital institutional buyers accounted for 29%, 12% and 3.7% respectively. Kun Square, Great Bell Feb 2019 Retail ByteDance ZK Investment 9.00 Temple

Singapore RECO Changan Feb 2020 LG Twin Tower Office LG Holdings 8.04 Private Ltd

Partners Group, SDP Invest- Mar 2019 Dinghao Electronic Building Office ment, Carlyle Group, Middle Sino Horizon 7.50 East Family Wealth Fund

Zhongguancun Times Oct 2019 Retail EBA Investments Glorious Oriental 6.80 Shopping Plaza

Ronsin Technology Center Oct 2019 Office, Retail Allianz Real Estate, Alpha Asia D&J China 6.60 (85% of equity)

Beijing Pangushi Aug 2019 Pangu Plaza Office BBMG 5.18 Investment Co., Ltd

North Building of Oriental Dec 2018 Office AEW, HONY Capital HOPSON 4.05 Culture and Art Center

20 21 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

BEIJING SELLER POFILE

By transaction value, in the four years from 2010 to 2013, Beijing real Fig 13. Seller composition of major property transaction market estate investment market was mainly in Beijing dominated by private sellers. From 2014 Private Seller REITS/Listed Company Institutional Seller Foreign Seller to 2016, foreign sellers were the main ones while between 2017 and 2019, seller 12.9% 15.2% 18.1% 18.5% 22.2% segmentation proportion continued to 31.9%

49.0% 12.1% change. 50.0% 56.7% 13.4% 51.6% 5.2% 49.3% 28.2% 31.8% 2.7% 3.7% 17.2% In 2019, the share of REITS/ listed 33.5% companies was 33.5%, a significant 6.6% 3.5% 56.7% 23.6% 6.7% increase of 29.8 percentage points YoY. 22.7% 21.7% 10.8% 55.4% 55.6% Private sellers accounted for about 39.1% 46.7% 3.7% 50.0% 61.7% 39.1% of the total transaction value, a increase 26.4% 25.8% 24.8% of 16.1 percentage points YoY. 23.0% 11.8% 0.7% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Foreign sellers accounted for 22.2% of the total transaction value in 2019, a Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Seller' in RCA Source：RCA, Knight Frank Research significant decrease of 29.4 percentage points YoY while institutional sellers accounted for approximately 5.2%, a decrease of 16.5 percentage points YoY. 04. In Q1 2020, REITS/ listed companies accounted for 50% of the total sales transaction value, and the remaining SHANGHAI sales transactions came from foreign and private sellers, accounting for 49.3% and INVESTMENT MARKET 0.7% respectively.

22 23 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

SHANGHAI ECONOMIC OVERVIEW SHANGHAI TRANSACTIONS –

24.28million 103.4 RMB785.6bn RMB306bn 3.4% yoy 6.7% yoy 20.4% yoy NUMBER

In the past ten years, the average number of major property transactions Fig 15. Major property transactions in Shanghai by number Permanent Population Consumer Price Index Gross Domestic Product in Shanghai real estate investment Total Retail Sales Transaction Number (end 2019) (Q1 2020) (Q1 2020) Consumer Goods market has reached 172 per year while 400 (Q1 2020) in 2019 it was 138, down by 9.2% YoY. 310 The average transaction value per deal 300 279 increased by 30.6% YoY to RMB 0.65 RMB20,646 RMB609.6bn 77.5% 9.3% yoy 206 207 4.9% yoy 2.7% yoy billion. 200 184 162 147 152 138 100 In Q1 2020, there were 44 major 72 property transactions recorded, with 44 0 Per Capita Disposable Added-value of Added-value of Tertiary Cumulative Growth in and average value of RMB 0.55 billion 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Income (Urban) Tertiary Industry Industry as % GDP Fixed Asset Investment per transaction. (Q1 2020) (Q1 2020) (Q1 2020) (Q1 2020) Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research

8.2% yoy 4.5% yoy RMB463.7bn RMB292.3bn 1.7% yoy 7.3% yoy

SHANGHAI TRANSACTIONS – Real Estate Investment Foreign Direct Investment Value of Import Value of Export (Q1 2020) (Q1 2020) (Q1 2020) (Q1 2020) SECTOR BY VALUE Source: Official Data

Office transactions took the lead, with the average annual transaction value over the Fig 16. Breakdown of major property transactions in Shanghai past decade accounting for about 65% of the by value SHANGHAI TRANSACTIONS – TOTAL major property transactions in Shanghai. Office Industrial Retail Hotel Apartment The second was retail properties, which VALUE had averaged only about 18.1% share while RMB(Billion) the other types of property assets were less 150 than 10%.

In the past decade, the annual major 100 In 2019, the segmentation share of major property transactions in Shanghai real Fig 14. Major property transactions in Shanghai by value estate investment market have reached property transactions in Shanghai real 50 Transaction Value an average value of RMB 73 billion, estate investment market was also in line with the market pattern. Office ranking first among the four first-tier RMB(Billion) 0 cities in China. In addition, the annual 150 transactions accounted for about 68.6% of 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 transaction value exceeded RMB 100 the total major property transaction value, retail properties accounted for about 23.3%, Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 billion in each of the three years from 109 Source：RCA, Knight Frank Research 100 101 102 2015 to 2017. 90 and the remaining types of property assets 72 76 accounted for 8.1% in total. 74 65 In 2019, the total transaction value of 50 45 46 In Q1 2020, there were transactions in major property in Shanghai real estate 24 market reached RMB 90 billion, up office, industrial property, retail property 18.6% YoY. In Q1 2020, the transaction 0 and hotel in Shanghai market, with the 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 value for major property stood at RMB transaction value accounting for 65%, 24 billion. 19.8%, 6.8% and 8.4% respectively . Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research

24 25 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

Deal Amount Date 2Project Property type Buyer Seller SHANGHAI TRANSACTIONS - RMB (Billion)

Building 1, Fuyuan Land China Enterprise Com- Dec 2018 Office China Reinsurance Group 3.08 SECTOR BY NUMBER Plaza pany Limited, SUNAC

QuadReal Property, GAW ARA Asset Since 2011, the segmentation of major Nov 2018 Shanghai Ocean Tower Office 2.97 Capital Management proprety transactions in Shanghai Fig 17. Breakdown of major property transactions in Shanghai real estate market remained stable, Building A-D, Shanghai by number Jan 2019 Office GAW Capital China Resources Land 2.80 Mixc Mall with office transactions accounting for Office Industrial Retail Hotel Apartment 49.3% of the total transaction number, 400 retail properties accounting for 33.8%, Note: The major property transaction amount is for the past 24 months and calculated in terms of the actual transaction value. The order of the transaction list is sorted by transaction value and other property asset transactions Source: RCA, Knight Frank Research 300 accounting for less than 10% in the past decade. 200

In 2019, the segmentation of major 100 SHANGHAI BUYER PROFILE property transaction value in Shanghai real estate market also followed the 0 previous trend. Offices accounted for 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 By transaction value, in the past 50% of the total number of Shanghai decade, real estate investment market Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Fig 18. Buyer composition of major property transaction market Source: RCA, Knight Frank Research major property transactions, retail in Shanghai has been dominated by in Shanghai properties for 37.7%, industrial REITS/ listed companies, accounting Private Buyer REITS/Listed Company Institutional Buyer Foreign Buyer properties and hotels for less than 10% In Q1 2020, offices and retail properties for about 34.2%, but the share of private hotels for 6.8%. 8.4% each. There was no major transaction accounted for 40.9% of the total investors accounted for about 28.4%. 14.6% 19.1% 18.1% 25.0% record for apartments. transaction number respectively, 31.6% 31.4% 8.7% 29.7% 22.3% 32.5% 30.6%

In 2019, REITS/ listed companies 13.4% industrial properties for 11.4% and 19.9% 0.8% 9.8% 18.3% accounted for an average of about 37.5% 9.2% 64.1% 16.6% 13.3%

of total transaction value, while private 40.5% 34.7% 29.7% 33.2% 31.2% 43.5% 37.5% buyers accounted for about 22.7%. 29.5%

29.9% 32.6%

8.5% Foreign buyers accounted for an average SHANGHAI KEY TRANSACTIONS 12.0% 37.8% 34.2% 36.1% of 24.1% of total transaction value in the 29.3% 34.7% 27.3% 18.5% 22.7% 22.1% 21.6% past decade, compared with about 31.5% 15.5% in the past three years. Table 7. Key Transactions 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Buyer' in RCA Deal Amount Institutional buyers have averaged Source：RCA, Knight Frank Research Date 2Project Property type Buyer Seller RMB (Billion) about 13.3% of the transaction value share over the past decade, and about Shanghai Port City Dec 2018 Office, Retail CapitaLand, GIC SIPG 12.80 9.2% in 2019. Mixed-use Project

Greenland Huangpu Jul 2019 Retail Brookfield AM Greenland 10.56 In Q1 2020, foreign buyers, private Riverside buyers, REITS/listed companies and institutional buyers all had transaction Mar 2019 Changtai Plaza Office, Retail Blackstone CJ Group 10.02 records in the Shanghai major property transaction market, and the Shanghai Mapletree Nov 2019 Office, Retail Blackstone Mapletree Investment 8.25 transaction value of these 4 types of Business City & Vivo City buyers accounted for 64.1%, 15.5%, 12% Shui On Land, Hongli Invest- and 8.5% of the total transaction value Jun 2019 Shanghai Enterprise NO. 5 Office ment, China Life Trustees China Life Trustees 5.69 respectively. Limited

Keppel Land, Universal-Invest- Yifang Jingyi Enter- Mar 2019 Shanghai Yifang Building Office ment, Bayerische Versorgung- prise Management 4.60 skammer (BVK) Company

Longyu International GIC, Hong Kong-Shanghai Jun 2018 Office Baoshang Bank 3.23 Business Plaza Alliance

26 27 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

SHANGHAI SELLER PROFILE

By transaction value, as Shanghai market continues to diversify, the Fig 19. Seller composition of major property transaction market segmentation of sellers in Shanghai real in Shanghai estate investment market continued to Private Seller REITS/Listed Company Institutional Seller Foreign Seller change, with no specific leading seller.

7.0% 9.2%

2.5% 21.7% 25.2% In the past decade, REITS/ listed 28.2% 35.3% 24.9% 40.1% 43.3% companies accounted for an average 2.8%

58.0% of about 22.5% of the total transaction 72.9% 35.8% 22.4% 72.6% 19.6% 10.2% 65.0% value and 25% of private sellers. In 2019, 30.3% 40.4% the share of REITS/ listed companies 11.6% 28.7% 11.7% 7.8% and private sellers was about 30.3% and 27.5%

37.8% respectively. Both categories of 4.2% 23.7% 15.7% 38.1% 42.5% 10.2% 18.1% 37.8% sellers accounted for more of the year 31.6% 33.4% 22.0% 23.2% than in 2018. 11.7% 12.7% 10.5% 9.9%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 The share of foreign sellers in all Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Seller' in RCA categories changed the most. Foreign Source：RCA, Knight Frank Research sellers accounted for 43.3% of the total transaction value in 2018, but only 7% in 2019. Same in other markets, the RMB exchange rate is one of the important factors affecting the sale of projects by 05. foreign sellers, and it also reflected the strong sensitivity of investors to the major property investment market. GUANGZHOU

In the past decade, the average INVESTMENT MARKET transaction value of institutional sellers was about 12.1%, but from 2017 to 2019, the average value of institutional sellers reached about 25.3%.

In Q1 2020, foreign sellers, REITS/ listed companies, private, foreign and institutional sellers accounted for 65%, 23.3%, 9.2% and 2.5% of the total transaction value respectively.

28 29 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

GUANGZHOU ECONOMIC OVERVIEW GUANGZHOU TRANSACTIONS –

15.30million 104.1 RMB522.8bn RMB199.5bn 4.1% yoy 6.8% yoy 15.0% yoy NUMBER

In the past ten years, the average number of major property transactions Fig 21. Major property transactions in Guangzhou by number Permanent Population Consumer Price Index Gross Domestic Product Total Retail Sales in Guangzhou real estate investment (end 2019) (Q1 2020) (Q1 2020) Consumer Goods Transaction Number market has reached 32 deals per year. (Q1 2020) 60 In 2012, 2014 and 2017, the number of major property transactions exceeded 50 48 RMB 65,052 RMB396.8bn 75.8% 7.4% yoy 45 deals. In 2019, the transaction 46 46 8.5% yoy 2.2% yoy number was 26, dropped significantly 40 39 38 40 by 35% YoY and the average value per 30 30 transaction decreased by 18.2% YoY to 26 RMB 0.34 billion. 20 21 Per Capita Disposable Added-value of Added-value of Tertiary Cumulative Growth in Income (Urban) Tertiary Industry Industry as % GDP Fixed Asset Investment 11 In Q1 2020, there were 11 major property 10 10 (2019) (Q1 2020) (Q1 2020) (Q1 2020) transactions recorded with average value RMB 0.45 billion per transaction. 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 8.4% yoy 2.6% yoy RMB91.6bn RMB110.8bn 13.0% yoy 2.7% yoy Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research

Real Estate Investment Foreign Direct Investment Value of Import Value of Export (Q1 2020) (Q1 2020) (Q1 2020) (Q1 2020) GUANGZHOU TRANSACTIONS –

Source: Official Data SECTOR BY VALUE

GUANGZHOU TRANSACTIONS – Office accounted for the largest share of major property transaction market Fig 22. Breakdown of major property transactions in Guangzhou TOTAL VALUE in Guangzhou over the past decade, by value followed by retail properties. But between Office Industrial Retail Hotel Apartment In the past decade, there were strong 2013 and 2018, the transaction value of RMB(Billion) fluctuations in the major property Fig 20. Major property transactions in Guangzhou by value retail properties exceeded that of offices transaction value in Guangzhou real for four years. 20 Transaction Value estate investment market. The total transaction value could reach over RMB RMB(Billion) In 2019, offices regained their leading 15 15 billion in 2012, 2014, and 2018, while 25 position in the market, with transaction 10 it could also reach below RMB 8 billion value accounting for 84.3% of the total in some years. 20 19 value in Guangzhou market. The rest of 5 16 16 that were almost from retail properties. 15 In 2019, the total transaction value 14 In Q1 2020, transaction values of offices 0 of major property in Guangzhou real and retail properties accounted for 4.5% 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 10 9 estate market reached RMB 9 billion, 9 and 95.5% respectively in Guangzhou down sharply by 46.8% YoY. In Q1 2020, 7 Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 7 7 market . The retail transaction value was Source：RCA, Knight Frank Research 5 the transaction value for major property 5 4 mainly contributed by the Pearl River Sun was RMB 5 billion, with an average City Plaza project, with total transaction transaction value of RMB 0.45 billion 0 value around RMB 4.6 billion, according per deal. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 to RCA.

Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research

30 31 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

Deal Amount Date 2Project Property type Buyer Seller GUANGZHOU TRANSACTIONS - RMB (Billion)

Guangzhou Weiteng Guangzhou No.3 Data 0.26 SECTOR BY NUMBER May 2018 Industrial GDS Data Technology Co., Center Ltd Since 2010, the major property transaction number in Guangzhou Fig 23. Breakdown of major property transactions in Guangzhou Jan 2018 Lliberation Building Apartment Landsea Hon Kwok Land 0.26 has led by retail property, accounting by number for about 48.4% in the past decade, Swire Cold Chain Logistics Office Industrial Retail Hotel Apartment Jul 2018 Industrial Vanke Logistic Swire Property 0.19 followed by offices, accounting for 41%. Asset Portfolio 50

Note: The major property transaction amount is for the past 24 months and calculated in terms of the actual transaction value. Between 2017 and 2019, the number of 40 The order of the transaction list is sorted by transaction value major property transaction in industrial Source: RCA, Knight Frank Research properties rose from the previous 30 year, accounting for 11.7% of the total transaction value for that 3 years. 20

In 2019, office and retail property 10 GUANGZHOU BUYER PROFILE transactions accounted for 46% and 0 50% respectively of the total transaction By transaction value, real estate number, with 4% for industrial 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 investment market in Guangzhou was Fig 24. Buyer composition of major property transaction market properties. In Q1 2020, the transaction Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 dominated by REITS/ listed companies Source: RCA, Knight Frank Research in Guangzhou number of retail properties accounted in the past decade. The share of private Private Buyer REITS/Listed Company Institutional Buyer Foreign Buyer for 91% of the total transaction number buyers in the total transaction value while offices for 9%. 6.6% 10.8% were relatively stable from 2013 to 2019 11.6% 12.8% 18.0% 6.2% 18.6% 22.3% 2.1% 25.4% 6.4% after a sharp decrease in 2012. 29.6% 27.5% 48.8% 6.0%

28.0% 7.9% 4.5% 9.2% In 2019, REITS/ listed companies 34.7% 7.9% 47.8% 41.8% 65.2% 57.5% accounted for 45.8% of the total 36.0% 45.8%

35.1% GUANGZHOU KEY TRANSACTIONS investment in major property 30.6% transaction market in Guangzhou, 28.2% 59.2% 8.2% while private buyers accounted for 47.3%

34.2% 31.9% 29.6% Table 8. Guangzhou Key Transactions about 24.2%. 33.9% 28.2% 24.2% 25.3% 23.0% 21.9%

Deal Amount In 2018-2019, the share of foreign Date 2Project Property type Buyer Seller 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 RMB (Billion) buyers’ investment value in Guangzhou Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Buyer' in RCA Baodexin Real Estate real estate investment market exceeded Source：RCA, Knight Frank Research Jan 2018 Lok Feng Plaza Retail CapitaLand 3.34 Fund that of the 2015-2017 period. In 2019, the investment value of foreign buyers Guangzhou Yuetai Aug 2019 Swan Bay Phase II Apartment Shimao Group 2.78 accounted for 25.4% of total investment Group Co.,Ltd value in the market. Guangzhou Yuetai Aug 2019 Jiasheng Project Apartment Shimao Group 2.49 Group Co.,Ltd Institutional buyers accounted for the lowest share of investment value in Yuexiu New Metropolis KaiLongRei Investment, Dec 2018 Office Yuexiu REIT 1.17 Guangzhou major property investment Building Guangzhou Metro market in the past decade, at about 5%, Headquarters Building, Guangzhou Jiankang Sports Modern Avenue and they had the 4.5% share in 2019. Oct 2019 Office, Retail 0.97 Modern Avenue Culture Development Co., Ltd Group In Q1 2020, the transaction value of Prosperity Interna- institutional buyers, private buyers, Sep 2019 Oriental Wende Building Office, Retail Forchn Investment tional Holdings (H.K.) 0.54 foreign buyers and REITS/ listed in Limited Guangzhou major property transaction Dalian Wanda Hotel and market accounted for 47.8%, 25.3%, Jan 2018 Hotel, Office R&F Group Dalian Wanda 0.22 Office Asset Portfolio 18.6% and 8.2% respectively of the total transaction value.

32 33 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

GUANGZHOU SELLER PROFILE

By transaction value, the segmentation of sellers in Guangzhou real estate Fig 25. Seller composition of major property transaction market investment market varies, with REITS/ in Guangzhou listed companies and private sellers Private Seller REITS/Listed Company Institutional Seller Foreign Seller accounting for 47.3% of the transaction 2.8% value of the investment market on 6.9% 19.3% average in the past decade. In 2019, 44.1% 44.6% these 2 types of sellers accounted for 36.9% 55.9% 52.5% 56.8% 88.6% 93.1% of the total. 69.1% 81.9% 84.5% 6.3% 70.3% The share of foreign sellers varied 4.5% 7.1% 8.4% greatly, accounting for more than 80% 53.8% 56.2% 2.9% of the sellers in 2012 and 2016, but also 44.6% 44.7% 37.1% 1.1% 34.7% accounting for only 2.8% of the sellers 27.9% 9.1% 17.0% in 2010. Affected by the RMB exchange 10.3% 11.4% 6.4% 2.2% rate, foreign sellers only account for 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 6.9% in 2019, down 37.7 percentage Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Seller' in RCA points YoY. Source：RCA, Knight Frank Research

In the past decade, institutional sellers only sold the local projects in 2015, 2016 and 2018, accounting for 53.8%, 1.1% and 6.3% of the total transaction 06. value of the sold projects in that year respectively. SHENZHEN

In Q1 2020, REITS/ listed companies and private sellers were active in the INVESTMENT MARKET major property transaction market, their transaction value accounted for 88.6% and 11.4% respectively.

34 35 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

SHENZHEN ECONOMIC OVERVIEW SHENZHEN TRANSACTIONS –

13.43million 104.5 RMB578.5bn RMB153.3bn 4.5% yoy 6.6% yoy 22.9% yoy NUMBER

In the past ten years, the average number of major property transactions Fig 27. Major property transactions in Shenzhen by number Permanent Population Consumer Price Index Gross Domestic Product Total Retail Sales in Shenzhen real estate investment (end 2019) (Q1 2020) (Q1 2020) Consumer Goods Transaction Number market has reached 40 deals per year. In (Q1 2020) 80 2011, 2015 and 2016 the number of major 72 72 75 property transactions exceeded 70. 60 58 RMB 17,129 RMB385.0bn 66.5% 16.1% yoy 44 3.9% yoy 1.8% yoy In 2019, there were only 27 transactions 40 39 recorded, but still up by 22.7% YoY. 27 23 22 However, the average transaction value 20 per deal increased sharply by 44.5% YoY 8 3 0 Per Capita Disposable Added-value of Added-value of Tertiary Cumulative Growth in to RMB 0.64 billion. In Q1 2020, there 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Income (Urban) Tertiary Industry Industry as % GDP Fixed Asset Investment were three major property transactions (Q1 2020) (Q1 2020) (Q1 2020) (Q1 2020) Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 recorded, with average transaction Source：RCA, Knight Frank Research value RMB 0.17 billion per deal.

2.1% yoy 1.6% yoy RMB169.6bn RMB291.5bn 0.7% yoy 21.1% yoy

SHENZHEN TRANSACTIONS – Real Estate Investment Foreign Direct Investment Value of Import Value of Export (Q1 2020) (2019) (Q1 2020) (Q1 2020) SECTOR BY VALUE

Source: Official Data

Office transactions accounted for more than half of the total transaction value of SHENZHEN TRANSACTIONS – TOTAL Fig 28. Breakdown of major property transactions in Shenzhen the major property investment market in by value Shenzhen. However, since 2016, the share Office Industrial Retail Hotel Apartment VALUE of office transactions had declined to about 31.4%, which resulted in an increase in the RMB(Billion) In the past decade, the transaction transaction value of retail and industrial 25 value in Shenzhen major property Fig 26. Major property transactions in Shenzhen by value property. From 2016 to 2018, retail and transaction market continued to grow. industrial property accounted for about 20 Transaction Value In 2017, the total transaction value 41.1% of the total transaction value in the exceeded RMB 20 billion, stood at RMB(Billion) market. 15 around RMB 22 billion. 25 10 22 In 2019, retail property transactions In 2019, the transaction value was about 20 accounted for 45.1% of the total value of 17 5 RMB 17 billion, rose sharply 77.3% 17 major property transactions, offices for YoY, as the second highest transaction 15 39.7% and industrial properties for 14.9%. In 0 value in the past decade. In Q1 2020, 11 11 2019, the total value of retail and industrial 10 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 the transaction value was about RMB 1 10 property transactions accounted for 60% billion. of the transaction value in Shenzhen major Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 6 Source：RCA, Knight Frank Research 5 4 property market. In Q1 2020, only industrial 3 property was recorded for transaction, with 1 1 0 transaction value of about RMB 1 billion. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 Source：RCA, Knight Frank Research

36 37 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

Deal Amount Date 2Project Property type Buyer Seller SHENZHEN TRANSACTIONS - RMB (Billion)

Asset Portfolio of Private Industrial, Office, China City Infrastructure Group Jul 2019 Private Seller 0.70 SECTOR BY NUMBER Investor Retail Limited

Temei Toy Industrial Since 2016, owing to the decline in Dec 2018 Industrial Eduardo Asset Management Temei Toy 0.68 Mixed-use Project the number of office transactions, Fig 29. Breakdown of major property transactions in Shenzhen the number of major property Building B, Yitian Yike by number Dec 2019 Office A-share Listed Company Yitian Group 0.60 Building transactions in Shenzhen has decreased Office Industrial Retail Hotel Apartment significantly. The average transaction 80 Xicheng Construction number of industrial properties in Haowei Toy Industrial Sep 2019 Industrial EEKA Fashion Investment Holding 0.59 from 2017 to 2019 was about 28, which Mixed-use Project 70 Group was almost consistent with the average transaction number of offices in the 60 Note: The major property transaction amount is for the past 24 months and calculated in terms of the actual transaction value. three years. The order of the transaction list is sorted by transaction value Source: RCA, Knight Frank Research 50 In 2019, retail properties accounted for 37% of the transaction number of major 40 property market in Shenzhen, as well as 30 offices for 37% and industrial properties for 22.2%. In Q1 2020, only three SHENZHEN BUYER PROFILE 20 industrial properties were sold.

10 By transaction value, private buyers in the major property investment market 0 Fig 30. Buyer composition of major property transaction market in Shenzhen accounted for about 30.2% in Shenzhen of the total investment value in the past 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Private Buyer REITS/Listed Company Institutional Buyer Foreign Buyer decade, while REITS/ listed companies Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020 : Source RCA, Knight Frank Research accounted for about 26.8%. 10.6% 17.4% 17.9% 25.1% 11.3% 35.1% 33.8% 34.9% 3.0% 35.9%

15.2% In 2019, REITS/ listed companis 49.8% 12.9% accounted for 12% of the total 69.5% 7.3% 9.3% 8.3% 17.7% investment value in major property 43.6% 80.0% 25.7% 20.4% 60.0% 2.1% transactions market in Shenzhen, while 16.7% 29.5% SHENZHEN KEY TRANSACTIONS 33.3% 9.6% private buyers only accounted for about 25.5% 13.8%. 49.6% 4.7% 41.6% 12.0% 34.5% 30.9% 27.3% 38.9% 22.6% 23.5% Table 9. Shenzhen Key Transactions 19.0% 20.0% The investment value of foreign buyers 13.8% accounted for an average of 33% in the Deal Amount 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020 Date 2Project Property type Buyer Seller market over the past decade, but that RMB (Billion) Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Buyer' in RCA rose to about 69.5% in 2019 Source：RCA, Knight Frank Research Shenzhen Overseas Shenzhen OCT Tower Apr 2019 Office China Life Chinese Town Co., 12.00 (60% of equity) Institutional buyers accounted for an Ltd. average of about 10% of total transaction value in Shenzhen market over the past T2 Building, China China Resources Dec 2019 Office CITIC Prudential Life 8.00 Resources Qianhai Plaza Land Qianhai Co., Ltd decade, falling to about 4.7% in 2019.

Link Real Estate Investment Prudential Financial, Mar 2019 Yijing Central Walk Retail 6.60 In Q1 2020, only foreign and private Trust Yijing Group buyers were active in the major property Shenzhen Yilian Technology transaction market in Shenzhen. Dec 2018 Olympus Shenzhen Factory Industrial Olympus 1.84 Co., Ltd Their investment value accounted for 80% and 20% of the total transactions Building 4&5, Taiziwan China Merchants Jul 2019 Office Local Organization 1.50 respectively. Business Building Group

Dec 2019 Building B, Haifu NO.1 Office Juncheng Holding Group OCT Binhai Company 1.00

38 39 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

SHENZHEN SELLER PROFILE

By transaction value, the major property investment market in Fig 31. Seller composition of major property transaction market Shenzhen used to be dominated by in Shenzhen private sellers, but their share decreased Private Seller REITS/Listed Company Institutional Seller Foreign Seller in the past decade. In 2019, private sellers accounted for only 9.2% of the 19.3% total major property transaction value 29.0% 41.5% 42.6% in Shenzhen market. 50.9% 57.8% 27.1% 68.7% 66.3%

84.2% 4.9% On the other hand, the share of 2.9% 86.7% 100% 8.9% foreign sellers’ transaction value in 0.6% 3.1% 45.0% 71.0% the Shenzhen market increased in the 2.0% 2.0% 50.7% past decade, from less than 20% of the 11.2% 53.5% 40.2% 38.5% market in 2011 to more than 85% in 2019, 29.7% 0.8% 16.4% 4.2% 12.4% 15.0% dominating the seller market of major 9.2% 3.7% property transactions in Shenzhen. 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Q1 2020

Note: Data for transactions of USD 2.5 million or more from 2010 to Q1 2020, excluding 'Other Seller' in RCA Institutional sellers and REITS/ listed Source：RCA, Knight Frank Research companies remained relatively inactive in the seller market for nearly a decade.

In Q1 2020, REITS/ listed companies and foreign sellers accounted for 71% 07. and 29% share of total transaction value respectively. SUMMARY AND THE FUTURE OUTLOOK

40 41 China Commercial Real Estate Investment Market (June 2020) China Commercial Real Estate Investment Market (June 2020)

Office leasing activity started to pick up In 2020, we expect debt and structured in Beijing and Shanghai but large size financing, office buildings in core KNIGHT FRANK INVESTMENT RADAR However, we see investors deals is not happening. New leases see a districts and non-performing asset actively looking for 3-5% drop in effective rent for Shanghai portfolio to attract more investment Looking into the major property and many tenants are receiving 1-2 distressed opportunities opportunities. investment markets in the four Fig 32. Major property investment markets in the four first-tier month rent relief and incentives from in the hospitality sector first-tier cities in China, the cities in China landlords and local governments. as it might represent the markets in Beijing and Shanghai are Economic Growth biggest discount in real relatively more mature, while those Hotels and Shopping malls are among estate while commercial in Guangzhou and Shenzhen are Beijing the worst performing sectors, we property assets are still growing relatively fast. have seen hotel business dropping among the most attractive Shanghai significantly in revenue, all indicative Population Real Estate investment types in Beijing: the market volume is large Development data are at historic lows and recovery is Investment Growth China. but the growth rate of real estate Guangzhou not being seen so far. development investment is low, Shenzhen the future transaction will remain stable.

Shanghai: the market volume is the Transaction Number Transaction Value largest and the growth of real estate development investment will be Source：Knight Frank Research stable.

Guangzhou: the growth of economic Shenzhen: among the first-tier cities, maintain rapid growth, and its and real estate development the market volume is the smallest, investment potential is large. investment are the fastest among but the economy and the real estate the first-tier cities, and the future development investment market growth in transactions will increase.

THE FUTURE OUTLOOK

With domestic and foreign Most international institutional past few weeks. manufacturing and service companies investors we surveyed still remain close to fully open up, the central and positive and will continue investing in Meanwhile, domestic investors are local governments are transitioning offices, logistics, data centres. However, focusing on debt and structured from containing pandemic to stabilizing their decision making process has been financing play as more property owners economy and promoting investments. delayed for at least three months due and developers are facing cash flow However, this process has been delayed to restriction on travel and meetings. problems. The local asset management due to increased number of imported Beijing and Shanghai are still the top team of some international funds are cases by people returning from choices for them, and most investors are also actively involved. overseas, resulting in disrupted trade only interested in core location assets. and cancelled orders from overseas We have seen increased interests from markets. Singapore based investors during the

42 43 We like questions, if you’ve got one about our research, or would like some property advice, we would love to hear from you.

Alan Liu Ying Shin Lee Katherine Lu Managing Director, Managing Director, Managing Director, China Shanghai Beijing +86 21 6032 1700 +86 21 6032 1719 +86 10 6113 8011 [email protected] [email protected] [email protected]

Even Huang Ken Kan Danny Zheng General Manager, Managing Director, Director, Capital Markets, Guangzhou Head of South China Office Services, Shanghai +86 20 8757 4229 Shenzhen +86 21 6032 1788 [email protected] +86 755 6661 3141 [email protected] [email protected]

Timothy Chen Demi Zhu Senior Director, Head of Research & Director, Office Services, Consultancy, China Beijing +86 21 6032 1769 +86 10 6113 8021 [email protected] [email protected]

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