Global funds exit China’s commercial properties with fourth year of net selling

Foreign investors were net sellers in China’s commercial real estate market for a fourth year in 2024, hastening their retreat as the nation struggled with deflation and higher global borrowing costs diminished the potential for capital gains.

They bought US$5.9 billion worth of office, hotel, industrial and retail properties last year, the lowest since 2014, as risk appetite waned, according to MSCI, which tracks property transactions worth at least US$10 million. Investors also sold US$6.9 billion of assets at the same time.

The US$969 million net selling last year brought the cumulative 2021-to-2024 outflows to US$11.2 billion, exceeding the net inflows for the preceding two years combined. Since the Covid-19 outbreak in early 2020, global funds were net sellers in every segment bar industrial assets, MSCI data showed.

“The office market has welcomed a lot of new supply, meaning that existing stock has faced downward pressure on occupancy and rents,” said Benjamin Chow, head of Asia real estate research at MSCI. “Investors have been less acquisitive” since rates increased from late 2022, and were likely to wait and see until values stabilised, he added.

Office properties, once favoured by funds betting on China’s rapid economic development, bore the brunt of the retreat as vacancy rates climbed. Net disposals amounted to US$1.9 billion last year, the largest among all commercial asset classes.

Blackstone, the world’s largest alternative asset manager, sold three logistics projects in the Greater Bay Area to Ping An Insurance Group in February, according to a Bloomberg report. The Canada Pension Plan Investment Board sold its 49 per cent stake in four shopping complexes to state-owned Dajia Insurance in January.