Development Projects, Industrial Parks and REITs Gain Traction

• Primary market residential sales in the Greater Bay Area (GBA) strengthened in 1H 2023 compared to the same period last year, with the improvement mainly seen in Q1, while the secondary market experienced downward pressure
• Total investment volume in the GBA commercial real estate (CRE) market reached RMB28.2 billion in 1H 2023, accounting for 31.5% of total mainland China CRE investment volume in the period
• Local capital and self-use buyers are the key drivers in the GBA investment market, with industrial/business parks and China Real Estate Investment Trusts (C-REITs) gaining traction.

HONG KONG SAR - Media OutReach - 20 July 2023 - Global real estate services firm Cushman & Wakefield today published its Greater Bay Area Residential and Investment Market 1H 2023 Review and Outlook. The pace of economic recovery in 1H 2023 fell short of expectations, and investors in China generally adopted a cautious view. GBA primary market residential sales strengthened compared to last year, despite the overall residential market exhibiting an uncertain upwards trajectory in the period following China's border reopening. Given the high global interest rate environment, the CRE investment market (large-sized deals at >RMB 100 million) also slowed, with total investment volume dropping significantly compared to last year. Looking ahead to 2H 2023, there are possibilities for some city and local governments to relax residential-related control measures, and such actions will help stabilize the GBA housing market. As for the investment market, it is expected that real estate funds and institutional investors will focus more on investment opportunities related to C-REITs. GBA Residential Market The GBA primary residential market recorded approximately 222,000 transactions in the first half of 2023. The sales figure was an improvement of 16.1% y-o-y and 4.7% q-o-q (Chart 1), with the increment mainly seen in Q1, although this performance is in the context of the relatively low base in 2022 under the pandemic restrictions, coupled with a spike in new residential launches in 1H 2023. Alva To, Cushman & Wakefield's Vice President, Greater China & Head of Consulting, Greater China said, "At the start of the border reopening period in Q1 2023, residential transactions in the GBA recovered, and the traditional peak season during March and April was also more active compared to last year. However, the boost from the border reopening could not be sustained, and the previous pent-up demand has yet to support the market sufficiently to rebound further. Since April, residential transactions have again slowed, with transaction numbers in June falling by more than 40% compared to March's peak, exhibiting a lack of upward momentum. The 2H 2023 transaction volume will hinge upon overall economic development. Various GBA cities have recently been relaxing their housing market policies, including easing measures on "reference prices" and "purchasing restrictions". Consequently, we believe that the GBA market will stabilize somewhat in 2H 2023, with monthly residential transactions expected to reach around 35,000 to 40,000 units, bringing the 2023 full-year total transaction volume to around 430,000 to 460,000 units, a rise of 7 to 15% compared to last year." As for residential price levels, some GBA cities did record increases in primary home prices in the 1H period, although these rises were mainly skewed by a few high-end new projects. In the secondary market, home price movements better reflect the current underlying trends. In Shenzhen, for example, Cushman & Wakefield's price index for mid-to-high-end secondary housing for Q2 2023 has fallen by 8.9% from its prior peak in Q2 2021 (Chart 2), reflecting the downward pricing pressure seen in the secondary market. Nevertheless, price adjustments can be favorable for end-users choosing to enter the market. Under the government's direction that "houses are for living in, not for speculation," any further policy changes for the residential market will likely be conservative, we expect home prices to further decline by another 5% in 2H 2023. GBA CRE Investment Market The slow global economic recovery, coupled with high interest rates and consequent elevated borrowing costs, has prompted investors to remain cautious, with the investment market primarily supported by local capital. The GBA 1H 2023 CRE investment market (large-sized deals at >RMB 100 million) slowed, with total investment reaching RMB 28.2 billion, down 10.5% y-o-y. However, GBA transactions still accounted for 31.5% of the overall mainland China investment market — setting a new record high and representing a significant jump from 18.0% in 2018 when the GBA initiative was first introduced (Chart 3). Within the GBA's mainland cities, the Guangzhou and Shenzhen investment markets were the most active, with Guangzhou...