An interview with ULI Asia Pacific President David Faulkner published on China Daily (HK Edition) on 7 January 2022.

Guangzhou and Shenzhen have continued to steal the show in commercial-property investment in the Guangdong-Hong Kong-Macao Greater Bay Area, taking the lion’s share of the deals realized in the sector last year.

The two metropolises in the Greater Bay Area’s 11-city cluster accounted for 98 percent of the total commercial-property transactions registered, according to international real estate business advisory firm Cushman & Wakefield.

The annual transaction volume for 2021 is expected to reach 60 billion yuan ($9.44 billion) – up 9 percent year-on-year – and also the second-highest in total volume between 2017 and 2021.

In terms of property types, non-traditional asset classes, such as industrial and logistics properties and data centers, are still attractive. Logistics properties became the center of attention in the city-cluster region as cross-border connectivity surged, pushing up demand for logistics facilities, such as specialist cold-storage services. But data center assets are limited by supply. Neighborhood malls are also expected to be investment targets as retailers shift to catering to the local consumer market. These areas are expected to become the mainstream investment classes in the future.

Offices in the Greater Bay Area are also among the favorite picks as Chinese mainland and Hong Kong companies start operations there, lifting demand for office properties. As the demand for offices climbs, so does the need for residential properties, as more professionals move into the region.

Cushman & Wakefield expects the Greater Bay Area’s residential market to stay stable despite concerns about future government policies. Homes in Shenzhen and Guangzhou are still the most expensive among the cluster’s 11 cities. Foshan, Dongguan and Zhongshan have been catching up, with double-digit growth increases in the property sector.

The only segment being left out is retail property because of the continued lack of tourists. With the future of tourism uncertain, international institutional investors will be deterred from putting their money into the sector as they do not understand it too well.

Real estate analysts are bullish about first-tier cities like Shenzhen and Guangzhou, but investment opportunities and activities are expected to gradually expand to other cities.

“We expect total investments in the Greater Bay Area in 2022 to be about the same as last year’s, with its investment market continuing to mature,” said Queeny So Wai-ting, Cushman & Wakefield’s executive director of Greater China capital markets.

Experts at the Urban Land Institute – the world’s largest network of cross-disciplinary real estate and land use – say cities on the eastern side of the Greater Bay Area will benefit greatly from the region’s development.

“Shenzhen, Guangzhou and Hong Kong are already established, but it will take time for other cities in the region to catch up. Dongguan will follow suit as its connectivity has improved and the city has become more accessible. Dongguan has been remodeled from low-end manufacturing to high-value manufacturing,” said ULI Asia Pacific President David Faulkner.

“For cities in the western Greater Bay Area, the area is being developed at a slower pace as it needs time to improve connectivity,” he said.

The Greater Bay Area, which comprises nine cities in Guangdong province and the Hong Kong and Macao special administrative regions, has a total population of more than 86 million with a combined gross domestic product of nearly $1.67 trillion.

Real estate analysts suggest that the region should build up its physical infrastructure and harmonize soft infrastructure to make property investment more attractive.

“Cities in the Greater Bay Area that are most accessible will benefit the most. Governments on both sides of the boundary should try to link up the entire region with railways, expressways and bridges to reduce travel time. When the region becomes more accessible, even smaller cities can lure people to work there,” Faulkner said.

“Governments should also focus on various forms of soft infrastructure, making it easier to travel, do business, transfer funds, open bank accounts and get medical services. It requires Hong Kong to be much more integrated with (other cities in the) Greater Bay Area. We need to harmonize the different systems.”

Cities in the Greater Bay Area have to play their roles in the region. For Hong Kong, it is the finance and professional-services hub. Shenzhen is the technology powerhouse, while Guangzhou is the regional trade and transportation nexus. Other cities in the cluster area have to find their unique positions if they want to be recognized by global investors.

“More foreign investors are exploring investment in the region, with 49 percent of last year’s total investment coming from foreign capital, compared to 17 percent in 2020,” Cushman & Wakefield’s So said.

Faulkner agreed. “I think the Greater Bay Area’s property sector will become an asset class for global institutional investors. Traditionally, they focus more on Shanghai and Beijing, but southern China’s property business will definitely be on the radar.”

He said many real estate investment trusts, or REITs, and Asian-based funds from Singapore, Japan and South Korea will look into GBA properties. It will require more time for American and European investors to get familiar with properties in the region.

There will be mergers and acquisitions, initial public offerings and portfolio restructurings when world investors set their sights on properties in the Greater Bay Area.

Property pundits have also highlighted the implications of the HKSAR’s Northern Metropolis development plan on the Greater Bay Area’s property sector in the coming years.

“There will be more developers in the northern part of Hong Kong. Traditionally, this area has been developing housing only in the new towns. There will be more jobs on offer in the northern part of the city. The proposed development plan will alter the balance of Hong Kong’s real estate market,” Faulkner said.

Another focus of the Northern Metropolis development plan is technology and innovation to enable the HKSAR to benefit from its links with Shenzhen. The two cities will develop much faster in the region. “I am positive about Hong Kong’s property market as the Greater Bay Area develops,” Faulkner said.

The Northern Metropolis development plan, unveiled by the Hong Kong government in October, aims to develop the northern part of the New Territories into a sprawling metropolis that will link up Hong Kong with Shenzhen and three major planning zones through infrastructure and transportation networks, an information and technology industry ecosystem, and sustainable eco-tourism facilities.

Author/ Reporter: Oswald Chan