China is driving growth in Asia’s real estate market despite trade war headwinds, report finds

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Real estate markets in Asia-Pacific grew at a record-breaking pace in the first quarter of this year — thanks in part to China and despite a global decline, according to real estate consultancy JLL.

The region recorded a new first-quarter high of $45 billion in real estate transaction volumes, according the company’s Global Capital Flows report for the first quarter of 2019.

That’s a 14% increase compared to a year ago — outperforming the Americas, as well as Europe, the Middle East and Africa (EMEA), the JLL report showed.

“Driving this performance was China, where quarterly investment surged to an all-time high of US$17 billion due to an increase in cross-border capital inflows and large-scale transaction activity,” said the report which was released in May.

The “domestic consumption story is so strong” in China, JLL’s head of Asia Pacific capital markets Stuart Crow told CNBC’s “Street Signs Asia” on Thursday.

“We’re seeing a huge amount of investment into the manufacturing — and most particularly in our world — the logistics real estate,” Crow added. “Even some of the big players in China themselves, being Alibaba and JD.com, (are) investing in that logistics real estate sector. “

We talk about logistics in China, it’s the real darling of the real estate industry at the moment, again because of that very growing middle class and domestic consumption story.

Stuart Crow

head of Asia Pacific capital markets at JLL

Japan, Australia and Hong Kong saw a fall in investment volumes, the report found. But other strong-performing real estate markets in the region — such as South Korea and Singapore — managed to offset that decline and push the overall performance of the region up, it said.

The surge in Asia-Pacific’s real estate market comes amid global political uncertainty and economic slowdown, which has hurt investor sentiment. Year-on-year investment in global commercial real estate markets dipped 8% to $156 billion this year, according to the real estate consultancy.

Residential buildings stand at the Metro Town development, jointly developed by CK Asset Property Holdings Ltd., Nan Fung International Holding Ltd. and MTR Corp., in Hong Kong, China, on Thursday, Jan. 11, 2018.

Anthony Kwan | Bloomberg | Getty Images

Investments have been “moving out of some of the slower growth economies in the world to the growth in Asia-Pacific,” Crow said, which is “partly because the markets are becoming a little bit more transparent.”

“We’re seeing some of these markets being a little bit harder to access, but now, by the listed and by the unlisted markets, some of the global investors are able to get more access and that’s precipitating just more transaction volumes,” he explained.

Possible diversification

With tensions between Washington and Beijing escalating, some investors and experts have projected that investment flows into China might be reallocated to other emerging markets in the Asia-Pacific region.

Still, Crow said he “hasn’t seen any noticeable impact in the amount of investment” that has gone into the Asian giant.

“We talk about logistics in China, it’s the real darling of the real estate industry at the moment, again because of that very growing middle class and domestic consumption story,” Crow added.

However, he acknowledged that if the U.S.-China trade war drags on, there will be “some diversification” of real estate investment into other markets like Vietnam.

“Particularly for manufacturing, Vietnam is definitely one that we are seeing just in the last few months, some of our investors start talking about Vietnam as an option,” Crow said.

For the rest of 2019, JLL projects global investment in commercial real estate to decline by about 5% to 10%, but the company remains bullish on Asia Pacific’s real estate markets.

“We’ve had record transaction volumes year-on-year for the last few years, we’ll have them again this year,” Crow said.

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