Shanghai to expand global presence for real estate investment

Among Asian cities, Shanghai, the commercial and financial centre of China, is on track to become part of the “Big Seven” group of Established World Cities before the end of the decade.

That’s according to JLL’s Director for Global Research, Jeremy Kelly, who says that Shanghai’s fast-track momentum is supported by massive infrastructure investment, increasing global connectivity, improving transparency and a shift into high-value activities.

Shanghai’s rise up the real estate investment ranking has also been spectacular.

“Real estate transaction volumes have increased more than ten-fold over the past decade, testimony to a city that is fast-tracking to maturity,” says Kelly, explaining that direct commercial real estate investment volumes in the city grew from US$1.4 billion in 2006 to US$15 billion by 2016. The city’s current real estate investment intensity is due to the very high volumes of domestic capital chasing assets, he explains.

Between June 2014 and March of this year, Shanghai recorded the second-highest commercial real estate investment volume in Asia, after Tokyo, mainly driven by domestic interest. Globally, the city ranks sixth among the top most invested cities for commercial real estate.

According to JLL, the Chinese city, together with Los Angeles, is best positioned to join the top group (termed ‘the Big Seven’) before the end of the decade – a group that currently includes New York, London, Tokyo, Paris, Hong Kong, Singapore and Seoul.

Growing up

In the last few decades, Shanghai has grown from an industrial centre in the 1950s to become China’s key financial hub, a function that has increased significantly in line with the Chinese government’s key role on the world’s stage. Today, the city is home to one of the world’s tallest towers and a rapidly rising number of domestic and global businesses.

Amid efforts by the government to liberalise its capital markets and allow the full convertibility of its currency, China’s financial system is expected to become even more integrated into the world economy by the end of the decade. The country currently represents the most significant single market for many or even most of the world’s multinationals in consumer products, automotive, industrials, healthcare, and many other sectors.

And the city has ambitions. Ranked fourth in JLL’s list of the Top 30 Most Dynamic Cities in the world, Shanghai has proven its ability to effectively embrace changes in technology, absorb rapid growth in population, and improve global connectivity. At present, Shanghai’s real estate market remains one of the most dynamic in the world, with demand that is supported by rapid growth of local financial and technology firms. Leasing momentum in recent quarters has continued to be strong. Even as supply of commercial real estate increased, the vacancy rate has remained low, according to JLL’s Asia Pacific Property Digest report for the second quarter.

In recent years, as city benchmarking becomes increasingly comprehensive and involves greater coverage of emerging economies, Shanghai has been in the top 10 of the most-frequently ranked cities.

The future’s bright
Going forward, China’s ambitious “Belt and Road” initiative will see Shanghai and Beijing expand their role in global markets as they become the financing and administrative centres for a project that will span as many as 60 countries across Asia, the Middle East, Europe and Africa.

According to JLL’s Decoding City Performance report, “Shanghai is sustaining its rapid move towards global city status. It has strong ambitions to become a global hub for financial services and innovation, and is investing heavily in both sectors to achieve this. Infrastructure improvement, better intra-regional connectivity, deregulation, SOE (state-owned enterprise) reforms and expanding domestic firms are pushing the city forward.”

However, Kelly cautions that, “As cities are increasingly judged by their business environments, market openness and levels of risk, Shanghai could still improve on its market transparency. The city also needs to address other areas such as congestion, housing affordability and air quality to maintain its upward trajectory.”

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