NEW YORK, NY. – Speculation that Chinese investments into the U.S. were headed for a nosedive when China’s State Council implemented a framework regulating outbound investments in August 2017, have been founded, according to a new report from Cushman & Wakefield. The firm’s experts, however, have emphasized that Chinese capital will continue to be a force in U.S. markets.
The 2017 China – U.S. Inbound Investment Capital Watch report estimates a 55 per cent drop in Chinese investment into the U.S. commercial real estate in 2017 ($7.3 billion) compared to the country’s feverous buying spell in 2016 totaling $16.2 billion.
Total volume of deals over $1B was down 75 per cent year-over-year (YoY) in 2017. By contrast, the total volume of deals under $250M fell only 12 per cent. The investment drop, largely a result of stricter capital controls and regulations, resulted in China’s fall from being the U.S.’ no.1 investor to no. 3 with Canada having re-assumed the no.1 spot and Singapore as no. 2.
New York City has been the largest recipient of Chinese investment into U.S. commercial real estate for many years but findings show momentum has eased. New York experienced a sharp deceleration in mega deal activity - a stray from the extremely high value transactions that were commonplace in 2016. The imposition of capital export restrictions during the course of the year, resulted in the cancellation of at least two $1B+ transactions.
Cushman & Wakefield’s New York-based Chairman of Capital Markets, Doug Harmon, said the report’s findings are consistent with his teams’ recent experience navigating the large deal segment of the NYC commercial real estate market.
“One of our main strengths has been the large deal transaction business and for years a significant part of it was meeting the insatiable appetite of Chinese investors for large trophy assets in the U.S. But just as Chinese appetite has waned, new entrants from around the globe have emerged to take its place,” Mr. Harmon said.
He pointed to the firm’s 54 per cent market share of all New York City deals over $250M in the second half of 2017 and especially in Q4 (the only active big deal quarter of the year in 2017).
Over the last six months, Cushman & Wakefield has acted as the broker/trusted advisor with the largest institutional owners on the following: SL Green’s 1515 Broadway - $1.95 billion, Brookfield’s One Liberty Plaza - $1.55 billion, Jamestown’s Chelsea Market - $2.4 billion, Witkoff’s 701 7th - $1.7 billion, Oxford/CPP’s Clarkson Square - $1.4 billion, and Starrett City - $905M, among other trophy transactions.
New York metro deals acquired by Chinese investors over $100M in 2017 included a mere three deals totaling near $2.7 billion in 2017 (vs. 15 deals in 2016 totaling $6.6 billion):
- 245 Park Avenue bought by HNA Group for $2.2B from Brookfield AM.
- The Standard Highline NYC bought by Gaw Capital from Dune Capital Management and Greenfield Partners for $340M.
- 537 Greenwich Street (development site) bought by China State Engineering from Cape Advisors for $102M.
In 2017, New York metro investment volume declined 32 per cent across all investors, while investment from China and Hong Kong was down 54 per cent. The decline in acquisitions was broad-based across property types. In dollar terms, hotel was the largest contributor to the decline as investments fell 80 per cent YoY.
Cushman & Wakefield’s New York-based, Executive Managing Director of Capital Markets, Janice Stanton, said, “Although Chinese investor activity has been dampened due to government policies on currency export, we believe that the acceleration of the US economy will continue to provide international investors with a compelling investment opportunity in 2018. And while New York City may witness some isolated Chinese dispositions in 2018 for political reasons, we believe that appetite will be quickly backfilled by other international players as New York remains a top destination for global capital.”
Mr. Harmon added to Ms. Stanton’s sentiment by saying that domestic capital as well as other foreign capital ex-China had amply filled the Chinese void so far in the bigger (1 billion) transactions and that his team was continuing to demonstrate market preeminence and experience in these big ticket institutional sales.
China achieved two spots in the overall Top 10 deals in the U.S. (Manhattan transactions) and has continued to eye New York, San Francisco, Los Angeles, Chicago, and Seattle for its major U.S. investment. More than three quarters of capital has continued to be deployed into these five markets. New York and San Francisco alone received two-thirds of every Chinese dollar.
Hotel acquisition volumes, one of the more frequent purchases in 2016, experienced a decline in 2017 – down 84 per cent YoY and accounting for fully 71 per cent of the overall decline in Chinese investment. Notwithstanding, there is still demand for hotels and it will continue: the recently announced sale of a $650M hotel portfolio by Barings to a Hong Kong investor demonstrates how capital controls have not extended to offshore capital.
Americas Head of Capital Markets Research at Cushman & Wakefield, David Bitner, said the report findings also indicated a healthy interest in industrial and office assets.
“Industrial volumes remain elevated compared to pre-2015 levels and we expect them to increase further. Office overall received 50 per cent of all Chinese capital in 2017,” Mr. Bitner said.
He added that the attractiveness of opportunities in other countries also contributed to the diminished capital flows into the U.S.
“In the real estate context, capital that might otherwise have been investment in the U.S. flowed into the U.K. and Hong Kong, taking advantage of a lower exchange rate and greater land availability for residential development respectively. These factors would have weighted on flows regardless of capital controls and so we cannot fully extrapolate the decline in flow forward. At the same time, it is increasingly clear that the composition of Chinese investors and the assets they seek are evolving,” Mr. Bitner said.
Get the Report: 2017 China-US Inbound Investment Capital Watch
Read the Blog Post: China has pulled back; what brought us to this point – and where to now?
Read blog post: China Formalizes Restrictions on Overseas Investment
About Cushman & Wakefield
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