CB Richard Ellis (CBRE) is the world’s largest real estate service provider, with over 24,000 employees around the world and 400 offices in 50 countries. Its Greater China business includes property advisory and services in developed cities like Hong Kong and Taipei in addition to emerging areas such as China and Macau. Chris Brooke, president and chief executive officer of CBRE’s Greater China operations, gives his insights on regional office property trends and advice on investing in new markets.
Q: What significant changes in China’s office and retail property sectors have you observed lately?
A: We’ve seen the emergence of central business districts of a quite significant scale in Shanghai, Beijing [and] Guangzhou. Now, we are seeing commercial hubs being developed in secondary cities in [China]. The retail [property] sector is becoming much more mature; [from] what was, five years ago, more department store-driven markets, to [markets] more driven by shopping centers and big box retail such as Carrefour.
Q: What about the industrial property market?
A: I think over the last five years, there has been significant investment in the logistics and industrial sectors. In the industrial sector [there was growth] initially in the Pearl River Delta, then northern Tianjin, Dalian, Qingdao. And now that the logistics sector opened up under the WTO provisions, we [will be] seeing a lot more expansion in the next three to five years. So the market is becoming more sophisticated. The quality of projects is improving and the demand for the whole range of different property types increasing.
Q: How does the office property market in the mainland compare to more developed neighbors such as Hong Kong and Taiwan?
A: Well, I think if you look at Asia, the three very mature markets would be Hong Kong, Tokyo and Singapore. At the moment, rent is very high in Tokyo and it is increasing rapidly in both Hong Kong and Singapore. At the moment, in Shanghai and Beijing, rent is relatively low compared with some more mature markets. There is still a price differential there. That may not change depending on how fast demand grows and [what the supply is] in the market. But I think there will always be a rental differential in Beijing, Shanghai and Hong Kong in the short-term, and that depends on the continued development of the economy in China and the market.
Q: Is mainland office property still worth investing in?
A: I think if you look at the office sector specifically you can generate a relatively good yield in a major market at the top-end. We see future rental growth, which should mean a reasonable return on investments for high-quality accommodation. I think in the second-tier cities there is probably an advantage to getting into the market early. The depth of demand is not that great at this stage, but if you are anticipating growth in some cities like Tianjin over the next three to five years and planning to build net worth, then there is an opportunity of getting in at a relatively low cost now and taking advantage of the lack of increase in demand.
Q: What are the advantages of investing in second and third-tier cities?
A: There are certain cities for venture capital and other major economic centers where the demand for office space is more apparent in the short-term. I think in some of the third tier cities, depending on how you define that, it may take a while before there is a critical mass of office demand to justify dedicated demand to high quality office buildings. Some of the emerging sectors which are developing very rapidly are Tianjin, Hangzhou, Dalian and Chengdu. There is probably a medium-term scenario developing there in terms of growth and demand, [which will take] one to three years, while third-tier cities take three to five years.