Since the middle of October, the Canada Pension Plan Investment Board has made three substantial investments in Chinese commercial real estate. What do the moves signal about the opportunities both in the market as a whole and in real estate?
Michael Peck, senior vice-president of institutional investment at Invesco Canada Ltd. in Toronto, says China is seen as a strong opportunity to gain access to a market that’s still exhibiting strong economic growth.
“The headlines everyone talks about is that China’s growth has been slowing down or decelerating as their economy is continuing to evolve and rebalance, but their total GDP growth is still around six per cent per annum, which is much stronger than almost any other part of the world,” he says. “I think that alone makes it a fairly attractive destination for investment.”
On Oct. 21, CPPIB announced it had entered its second joint venture with Longfor Properties Co. Ltd. to invest $193 million and a 49 per cent interest in a shopping centre in Chongqing, China. Later that week, it invested US$375 million in a Chinese private investment vehicle owned by CapitaLand that will focus on commercial real estate developments in the country’s gateway cities. And at the beginning of November, it said it would acquire a 40 per cent interest in a shopping mall in Dalian, China, for US$162 million.
Read: CPPIB invests US$162M in Chinese shopping mall
Read: CPPIB invests US$375 million in Chinese commercial real estate
Read: CPPIB invests $193M in Chinese shopping centre
China makes up about 20 per cent of the world’s real estate markets, says Peck. “As a result, and we’re seeing this broadly among Canadian pension plans, they’re trying to get money outside of Canada, because we’re two to three, four per cent of world stock markets/real estate markets/bond markets,” he says. “I think most institutional investors — and CPPIB is one of the world’s leaders — view it as an important market.”
And with China’s market having matured significantly in recent years, it’s now much easier to get exposure to real estate investments there, Peck adds. “For example, when we look at China, we see there’s Tier 1 cities like Beijing and Shanghai, and then there’s some Tier 2 cities. We’re a bit more focused ourselves on the Tier 1 types of cities. We view that as being more stable, predictable types of demand profiles.”
Read: What’s the prognosis for investing in China?
Peck also notes there has been more interest in not just Chinese real estate investment but in the Asian property market more broadly, an area he says North American investors have been slower to look into. “But given the strong performance that we’ve seen on the U.S. real estate sector, I think you may be seeing some investors looking to do some rebalancing,” he says.
“Canada itself, for example, has done really well from a real estate perspective over the last number of years, so a little bit of a tilt away from Canada towards Asia, from a portfolio construction and a risk mitigation perspective, I think makes a whole lot of sense what they’re doing. We’re advocating for that ourselves in global real estate portfolios that we run for clients as well.”
Read: What should institutional investors expect from the real estate market in 2016?