China dominates commercial property scene worldwide

China recorded a 39 per cent increase in property investment in 2009. Photo / Supplied

China is now the largest real estate investment market in the world, overtaking the US, says Cushman & Wakefield, Bayleys' international affiliate, which predicts that global investment in commercial and industrial property will rise by 30 per cent this year.

However, according to Cushman & Wakefield's 2010 Global Investment Atlas, which monitors property investment flows in 56 countries, the rise in commercial and industrial real estate will be led by a reviving US with commercial property investment forecast to hit US$478 billion ($694.8 billion) in 2010.

The report says this upswing could be bettered if the economic recovery remains on track but a fall in rents globally is also anticipated.

The Global Investment Atlas says that in 2009, global investment transactions fell 23 per cent to US$365 billion, the lowest level since 2003. However, as markets started to recover and global liquidity improved, investment activity ended 2009 on a much stronger note - rising 104 per cent between the first and second six months of the year.

China was the star performer in the upturn led by the Asia Pacific region which bucked the international trend and recorded a 39 per cent increase in property investment in 2009.

While investment volumes plummeted 64 per cent in the US in 2009 to just over US$100 billion, they rocketed ahead in China by 143 per cent to close to US$160 billion - triggered, Cushman & Wakefield says, by government land sales and regulatory changes which encouraged bank and insurance fund investment in real estate for the first time.

With China leading the charge, the increasing dominance of Asia Pacific overall is a notable feature of global investment in property markets, Cushman & Wakefield says. Eight of the world's top 20 investment markets are now Asian Pacific.

Hong Kong, Taiwan and New Zealand experienced rises in sales volumes last year, while Australia and South Korea had a much more modest decline than the global average.

Gerald Rundle, head of Bayleys Research, who compiled the New Zealand section of the Global Investment Atlas, says while New Zealand did not escape the global downturn as vacancies rose, rents declined and yields softened, investor activity in commercial and industrial property increased 20 per cent in 2009 to a total of $4.36 billion.

"As 2010 progresses, high net worth local players look set to dominate the investment side of the New Zealand market, with some institutional Asian and European investment at the top end of the market possible later in the year, particularly if the New Zealand dollar softens," says Rundle.

Slower growth in investment volumes of around 20 per cent is forecast for Asia Pacific this year with the two largest markets being China and Japan. Donald Han, Cushman & Wakefield Asia Pacific's managing director, says Japan is looking increasingly compelling with a relatively high spread between yields and finance costs. "With huge investment grade opportunities, particularly distressed assets, selling at below replacement cost, we are expecting opportunistic buying activity this year."

China will also continue to see vibrant activity, despite recent government measures to cool down the property market, and is expected to retain its No 1 position as the world's largest property investment market.

Cushman & Wakefield says yields stabilised in most areas in the latter half of last year as a result of higher investor demand and limited supply. The global average yield fell 20 basis points in the second half of 2009 to 7.8 per cent, reversing a rise of 21 points in the opening six months. It is a trend that is expected to continue this year, says David Hutchings, head of research for Cushman & Wakefield in Europe.