East China
Shanghai business park assets are likely to see more investment growth than offices, with rent rising due to a growing high-tech sector and better infrastructure. Retail property also remains optimistic, which yields 4.0-6.5%. Logistics trends are bright, with rent and prices rising and assets available in outlying cities. Looking ahead, long-term rental apartments are emerging as an appealing new sector due to government efforts to promote the rental market.

North China

Decentralised areas of Beijing still offer attractive office assets. Business parks offer appealing yields of 4.2-4.8%. Trends in logistics are positive; however, there is likely going to be more activity in cities such as Tianjin and Langfang due to lack of assets in Beijing. Logistics growth should benefit Shenyang, the hub of the North East.

South China 
South China is expected to attract more international investor interest as a result of the Greater Bay Area (GBA) initiative. In the office sector, Shenzhen is forecast to yield high rental growth, while Guangzhou’s Pazhou district is likely to develop into a new CBD attracting new office investment. Logistics assets are in short supply in Shenzhen and Guangzhou, therefore investors should turn to adjacent cities instead such as Dongguan and Foshan. Ample new retail supply will also create new opportunities in the long run.

West China
 
West China continues to offer good value for investors. Grade A offices in Chengdu yield 5.7%, and the Financial Town area offers ample supply and strong policy support. There are also good opportunities in business park assets, which yield 7-8%, notably in South Hi-Tech district. Despite current scarcity of assets, Chengdu is rapidly growing into a key logistics hub. Looking ahead, further logistics development is expected to shift toward new areas east of the city. 

Fig.1: Q1 2018 Investment Property Yields in China

City

Office

Retail

Industrial

Business Park

Beijing

4.0%

5.0%

5.0-5.5%

4.2-4.8%

Tianjin

4.5%

6.0%

5.5-6.0%

n/a

Shenyang

5.3%

6.3%

6.0%

n/a

Shanghai

3.6%

4.0–5.5%

5.0-5.5%

4.3%

Nanjing

5.3%

5.5-6.5%

5.5-6.5%

5.0-6.0%

Hangzhou

5.1%

5.5-6.5%

5.5-6.5%

5.0-6.0%

Shenzhen

3.9%

5.2%

6.7%

4.5-5.0%

Guangzhou

4.0%

5.0%

6.0%

5.5-6.0%

Chengdu

5.7%

6.0%

6.0%

7.0-8.0%



Comparison among Asian cities

Comparing Hong Kong, arguably Asia’s gateway city, with other cities in the region, it is notable that Hong Kong has the lowest property yield in the office (2.4%), retail (2.3-2.5%), industrial (3.5-3.7%) and luxury apartment (1.9-2.1%) sectors. A shortage of available commercial buildings, adequate liquidity, the influx of Chinese investors and local demand are the factors that have bid up transaction prices in Hong Kong.

Singapore is seeing a boost in market sentiment and confidence, supported by broadening GDP growth and an expected multi-year recovery in the office and residential markets. Vacancy rates are declining in commercial property after oversupply in previous years, leading to an attractive property yield on office (3.6%), retail (4.2-5%), industrial (6%-7%) and business parks (5.2%-6.2%). 

Emerging cities in South East Asia and India offer high yields on office (4.5-9.0%), retail (4.5-9.3%), industrial (6.5-10.0%) and business park (4.5-9.0%) assets. South East Asia and India stand out in anticipation of high and long-term economic growth with a lower cost base and plentiful investment opportunities.

For Chinese Tier 1 cities, commercial property yields lie between those of the well-developed markets (Hong Kong, Singapore and Taipei) and those offered by cities in the emerging markets of South East Asia and India. Stable economic growth and robust commercial property demand from investors and users should keep valuations high, putting downward pressure on property yields for office (3.6-4.0%), retail (4.0-5.5%), industrial (5.0-6.7%), and business parks (4.2-6.0%).