In search of new hunting grounds
While domestic developers are engaged in a fierce bidding war for investment opportunities in top tier cities in China, foreign capitals are instead looking at opportunities in second and lower tier zones.
Industry experts say that many commercial properties within smaller cities that neighbor regional hubs — Taicang near Shanghai and Zhongshan near Guangzhou, Guangdong province — require better management of their premises before they can achieve further growth and those foreign capital investors are keen to provide solutions to this issue by upgrading these properties to meet the consumer demands of today.
William Cheng, executive chairman of Malaysian Lion Group, said the retail division of the group, Parkson Retail Group, will now focus more on lower-tier cities and seek to transform its department stores into broader commercial complexes in the future.
According to Cheng, the retail group will also consider exporting its management solutions to other retailers in the country.
Justin O’Connor, the CEO of real estate investment firm Savills Investment Management (Savills IM) said that returns can be generated from not only rising property prices but also from the value that management and operational expertise add to a property.
O’Connor said that Savills IM can leverage its expertise in management and its networks of experts with local know-how to locate and take over underperforming assets. Follow- up measures then include renovating and repositioning these properties so that they can generate higher yields.
Savills IM had previously relied on market research and consumer surveys to upgrade a shopping mall in a third-tier city in southern China into a complex that offers a greater variety of options to consumers, in an attempt to raise rental rates by two to three times.
Such investment management will bring steady and stable returns, according to Jin Guo, head of Greater China in Savills IM.
Analysts say that the logistic properties market will also see strong demand from third-party logistics providers as e-commerce and retail companies continue to drive demand and expectations. Support from cross-border e-commerce will also likely benefit this sector further.
According to Steven To, USB Securities analyst, logistic investors are seeking opportunities in cities with fast- growing populations, ample land supply and easy access to expressways, such as Wuhan of Hubei province, Chengdu of Sichuan province and Chongqing.
In suburban Shanghai areas such as Jiading and Qingpu districts, investors have been in active talks regarding opportunities to develop logistic projects.
Earlier this year, Australian Goodman Group acquired A-REIT Jiashan Logistics Center in Jiashan, Zhejiang province, from Ascendas REIT for $26 million.
This logistics center is located at the southwestern border of Shanghai and has a total gross floor area of 35,729 square meters.
Wayne Huang, general manager at Goodman China, said that the logistic properties market has great potential in China, and it may become the world’s largest contract logistic market in the near future.