Investors look to increase exposure in China despite market uncertainties
Over 90% respondents will increase or keep the exposure to mainland China, JLL Investor Survey shows
Shanghai, 2 September 2020 - Real estate investors remain positive about investing in mainland China although they continue to weigh up current market uncertainties due to the COVID-19 pandemic and the geopolitical environment. According to global investors surveyed by JLL, around 51% want to increase their exposure to mainland China, with another 41% to keep investments stable.
JLL surveyed 38 global investors collectively holding over USD 1.8 trillion of assets under management (AUM) on how COVID-19 is impacting their strategic investment decisions and planning. “Mainland China is one of the most popular investment destinations in Asia Pacific. In particular, larger investors with over USD 20 billion AUM appear to want greater exposure in the market. Three quarters of these investors plan to increase or keep their exposure the same,” says Roddy Allan, Chief Research Officer, Asia Pacific, JLL. “Besides, intra-regional investors are also more positive about investing in the market.”
While the domestic economy was slowing even before COVID-19, many investors are seeing through the short-term headwinds, and looking to the longer-term growth potential of the market. Mainland China was one of the most resilient markets in the region, with transaction volumes falling 15% in the second quarter year-on-year, recovering from a 62% drop in the first quarter. The total investment volume in the first half was recorded at RMB 96.3 billion.
“Appetite for office assets in mainland China remains high, attracting 70% of total investment. Assets with stable cash flows will continue to be favored by investors,” says Jim Yip, Head of Capital Markets, China, JLL, “In addition, relatively low lot sizes and superior returns make alternative asset classes such as cold-chain storage and data centres, amongst others, an attractive investment option for many investors.”
Increased focus on core markets and sectors is not the trend only for mainland China, but for the entire region. “Our interactions with clients reinforce the view that investors will continue to seek defensive locations and sectors where the rental collection experience has been positive. In addition to Mainland China, Japan and Korea remain high on the preferences for clients, as do sectors such as multifamily, non-discretionary retail and logistics. As transactional activity increase and pockets of value emerge from the crisis, we expect investors to move up the risk curve,” says Stuart Crow, CEO, Capital Markets, Asia Pacific, JLL.
According to the survey results, around 84% of respondents expect transaction volumes to recover by the second half of next year, among which 32% expect recovery in 2H 2020. Almost 90% of survey respondents expect their 2020 total returns to be lower than the returns they achieved in 2019. A small proportion expect returns this year to remain the same (11%) or improve (1%). As investors review their Asia Pacific strategies, JLL expects several key themes to gather momentum into 2021:
- COVID-19 accelerating pre-existing trends: Investors are planning to increase their exposure to logistics (81%), multifamily (58%), and alternatives (44%) between now and the end of 2021.
- Focus on capital value preservation: 82% of investors are planning to retain or increase their exposure to the core sectors, such as offices, by the end of 2021 with only 6% expecting to reduce their exposure.
- Going beyond core: While core sectors remain central to strategies, investors also plan to increase their activity in the core plus by 42% and value add segments by 49% in 2021, due to both the limited opportunity to acquire assets and a rebalancing of relative risk and volatility.
- Transactional diversity to mature: Direct acquisition in private markets will remain the primary route for most investors, but many are increasingly looking towards different transaction structures in order to gain and increase their exposure to real estate. 32% of respondents are planning to increase exposure to platform or entity deals, while 29% plan to increase their activity in debt markets.
“COVID-19 is changing how investors access real estate. While we typically see a shift to more stable risk profiles during times of uncertainty, many investors are signaling not only a longer-term diversification strategy in Asia Pacific but are also reimagining how they transact in this region,” adds Allan.
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JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of nearly 93,000 as of June 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit jll.com.