INVESTOR INTENTION SURVEY

CHINA OUTBOUND INVESTMENT

2020
 METHODOLOGY

• Investment transaction data contained within this report was largely sourced from Real Capital Analytics, deals
over US$5 million.
• The transaction date adopted in our analysis here is based on the closing date of the deal as per RCA data sets.

PAR T 1
INTRODUCTION
China Outbound Investment Report 1
EXECUTIVE SUMMARY

In the past decade, the rise and fall of mainland Chinese investment in global real estate markets has created quite a stir
amongst the international real estate community. However, in recent years overseas real estate investment activities of
this group of investors has shifted from overseas acquisitions to disposals, with 2019’s total overseas investment volume
down 79% since the peak in 2017.

Cushman & Wakefield Research has been tracking activity and deals over US$5 million, through the highs to the current
lows. In early 2020 Cushman & Wakefield launched the fifth annual China Outbound Real Estate Investor Intentions
Survey. Over 40 senior real estate investors contributed to the survey. In this report we look at recent investment activity,
and discuss and contrast this with the findings of the 2020 China Outbound Real Estate Investor Intentions Survey.

While this survey was underway the COVID-19 situation first emerged. Much has changed since then, but this is a global
pandemic and as such we do not expect it to impact investor sentiment by destination. However, the economic downturn
caused by COVID-19 will have a significant impact on deal volume in 2020, and some international markets may recover
and become accessible more quickly than others. The subsequent impact on global asset pricing on specific sectors such
as retail, hotels and senior care facilities may create sector- specific distress, but at the same time will generate
opportunity.

Sources: Real Capital Analytics, Cushman&Wakefield Research China Outbound Investment Report 2
 INTRODUCTION
Outbound Real Estate Investment From China

In 2019, Mainland Chinese Real Estate Investment Overseas and Hong Kong
Figure-1: Annual Outbound Transaction Volume Real Estate Investment Overseas, hereafter referred to as MCREIO and HKREIO*,
USD Billion Number of deals
continued to trend downwards. A total of US$8.8 billion and US$9 billion worth of
70 450 MCREIO and HKREIO respectively was deployed in 2019, dropping 44% and 9% y-
60 o-y, respectively. The MCREIO 2019 transaction volume fell to its lowest point since
50 350 2012.
Total
40 $17.8 Bn
250 Although overall transaction volume slowed in 2019, MCREIO did see some major
30
20 transactions this year. In Q2 US$4.3 billion was deployed, though largely driven by
150 two deals: CR Land and Poly Group JV acquired a Hong Kong development site in
10
0 Kai Tak for US$1.6 billion, while Hengli Group in conjunction with Gaw Capital
50
(10)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 acquired a Hong Kong office portfolio from Swire Pacific for US$1.9 billion.
(20) HKREIO Disposals MCREIO Disposals (50)
However, despite this flurry of MCREIO activity in Q2 2019, it is clear that the impact
(30) HKREIO Acqusition volume MCREIO Acqusition volume
MCREIO Number of Acqusitions HKREIO Number of Acqusitions from a series of control policies on outbound real estate investment introduced from
(40) (150)
the second half of 2017, the tightened lending environment seen in 2018 and 2019,
Figure-2: Quarterly Chinese Real Estate Investment Overseas and prevailing global economic uncertainty have brought renewed challenges to
USD Billion
many Chinese investors.
30
Hong Kong Mainland China These difficulties have been a major factor in softening acquisition activity and are
CIC Acquired
25 now also clearly driving disposals. For the first time since our survey began we saw
Logicor ($14.5 Bn)
20 the year’s disposals outweigh acquisitions, with over US$20 billion of overseas
properties being sold by mainland Chinese investors*.
15 Q4 HK:
$2.9B
10 Q4 MC: HKREIO also faced downwards pressure in 2019, albeit less severe, weighed down
$2.0B by global economic uncertainty and local unrest. Compared to 2018, total HKREIO
5
investment volume declined 9% y-o-y to US$9 billion in 2019, marking the third
0 consecutive y-o-y contraction from 2017.
* HKREIO excluding investment to Mainland China
**It should be noted that some 2019 disposals may have been driven by policy guidance rather than typical vendor motivations. Such
divestments may have helped repatriate foreign exchange back to China and reduce foreign currency loan exposure. Such transactions
had an impact on disposal activity in the USA, UK and the EU.
Source: Real Capital Analytics, Cushman & Wakefield Research China Outbound Investment Report 3
POLICY OUTLOOK
Mainland Chinese Real Estate Investment Overseas

In our survey we wanted to understand in more detail the drivers of this cooling of activity and to what extent these would further impact activity in 2020.

When asked how intensified policy control since 2017 had impacted their ability to invest overseas, we found that the number of MCREIO investors experiencing a
severe impact, where it had become impossible to invest in overseas real estate, had dropped from 24% to 16%, whereas those experiencing limited impact or no
change had risen from 36% to 42% of respondents. Though this still represents a relative minority it is an encouraging signal with a noticeable improvement in sentiment
since our survey of 2019.

Figure-3: As a result of outbound investment policy control, how difficult has it become for you to Figure-4: Policy restrictions will ease
convert to invest overseas?

Severe impact, it has

became impossible
for us to transact
overseas, our funds
are likely to remain
in China this year
2020’s survey result
Significant impact,
we are finding it
Limited impact, we
are still able to
No change, we are
still able to transact
13%
extremely difficult transact but the overseas
but still hope to approval process
transact this year is slow
42%
2020’s survey result 2020’s survey result 2020’s survey result

16% 42% 26% 16% 45%

2019’s survey result 2019’s survey result 2019’s survey result 2019’s survey result
Despite the shift towards slightly more positive
24% 41% 22% 14% responses above, when asked whether in
future outbound real estate investment policy
restrictions might ease, just 13% agreed.

Source: Cushman & Wakefield Research China Outbound Investment Report 4

LENDING ENVIRONMENT
Mainland Chinese Real Estate Investment Overseas

Another factor impacting activity through 2019 was the tightened domestic lending environment. This has been affecting not just MCREIO investors’ ability to make
acquisitions, but more importantly the ability of some investors to refinance and hold assets -- a major factor which has contributed to the recent flurry of disposal activity
of global assets. However, according to the respondents, this may now be having a less severe impact than we previously assessed, with only 29% of respondents citing
this as having a significant impact at the current time. However, looking to the future, we asked investors about the debt outlook and found that only 13% anticipated the
debt situation to improve.

Figure-6: The domestic lending environment

Figure-5: How did tight lending policy impact your global investment in 2019? will improve in future

Significant Impact 13%

Limited Impact

48%
No Impact

0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%

39%
Nevertheless, when combining the results of two survey questions on policy (Figure-3) and debt (Figure-5), those mainland Chinese respondents who
were experiencing a significant or severe challenge from a policy perspective and those who were experiencing significant impact in respect of debt, or both,
represented 65 percent of respondents. No surprise then that we saw investment volumes plummet and disposal activity spike in 2019. Though it appears sentiment
is improving since last year’s survey, with only 13% of respondents anticipating an improvement in policy, and debt situation remaining tight, a rebound of MCREIO
acquisition activity is not on the immediate horizon.

Source: Cushman & Wakefield Research China Outbound Investment Report 5

OVERSEAS CAPITAL DEPLOYMENT
Mainland Chinese Real Estate Investment Overseas

The challenges faced with regards to policy and debt was echoed when MCREIO investors were asked about the change in fund all ocation to overseas real estate
investment in 2020 compared to 2019. For the third year in a row, the number of investors that were increasing their overseas investment declined, now down to just
13% of respondents. Those indicating plans to reduce their investment in the year ahead significantly outweighed those looking to increase investment, with nearly
half indicating a pull back from international markets.

Figure-7: How will your fund allocation to overseas real estate change in 2020 compared to 2019?

60% 55%
48%
50%
40% 39%
40% 36%
29%
30% 25%
20% 16% 13%
10%

0%
Reduced investment About the same Increased Investment
2018 2019 2020

Despite this apparent pull back, when looking at investment on a destination-by-destination basis we observed some stark differences, with certain locations
appearing to be attracting more MCREIO attention than in previous years.

Source: Cushman & Wakefield Research China Outbound Investment Report 6

PAR T 2
DESTINATION
China Outbound Investment Report 7
DESTINATION
Mainland Chinese Real Estate Investment Overseas

Figure-8: MCREIO Volume by Destination 2019

USD Billion
Hong Kong accounted for 49% of the total MCREIO transactions in Total Value
2019. However, we note that the majority of activity occurred in the 5.0 Total Number of Deals 20
first half of the year. Australia took second place, overtaking the USA 4.5 18
with a 13% share and 19 deals. 4.0 H2 16
3.5 14
Benefiting from business relocations, as well as trade and investment 3.0 12
diversion caused by recent trade frictions, investment into Asia 2.5 10
markets such as Japan and Singapore appeared more appealing, as 2.0 8
H1
investors increasingly sought to weight their portfolios towards 1.5 6
security and stability.
1.0 4
CA 0.5 2
Others
Figure-10: Investment to Japan, Singapore &SG
SEA
0.0 0
Hong Australia Japan United Singapore United Belgium Malaysia Macao Others
2018 2019 US$ 1.7 Bn
Kong SAR States Kingdom SAR
5% US in 8 Deals
US$0.7Bn in 7 19% Figure-9: MCREIO Volume by Destination (Q1 2016 – Q4 2019)
deals

Quarterly Destination Shares

100%
CA Others
80% SGP
UK

60% US

40%
AUS
HK
20%
As Brexit uncertainty rolled on and trade frictions intensified, real
estate investment from mainland Chinese investors into the UK and
0%
U.S slowed, decreasing 36% and 63% y-o-y respectively . 2016 2016 2016 2016 2017 2017 2017 2017 2018 2018 2018 2018 2019 2019 2019 2019
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Hong Kong Australia United States United Kingdom Singapore Canada Others
Source: Real Capital Analytics, Cushman & Wakefield Research China Outbound Investment Report 8
DESTINATION
Proportion of other markets’ transaction volume

Figure-12: 81 Deals in 2019

Figure-11: 167 Deals in 2018 Despite investment volumes being down sharply in 2019 we
have seen a greater array of destinations amongst investors.
However we have yet to see if this will be sustained in the
coming years, or represents a one-off.
Others
Hong Kong Hong Kong

Singapore
United
Kingdom
Others Australia
United Australia
Singapore States United
United States
Kingdom Total Acquisition Volume: US$8.8 Bn
Total Acquisition Volume: US$15.7Bn
Japan
Macao SAR
Malaysia However, in the case of Japan, it
should be noted that this was
Belgium reflected in just one deal as The
Slovenia Westin Tokyo was transacted at
890 million US$, therefore
Netherlands
representing 100% of Mainland
South Korea Chinese investment activity in the
Thailand Japan market.
Myanmar
France Cambodia
India
9
Source: Real Capital Analytics, Cushman & Wakefield Research China Outbound Investment Report 9
2020 INVESTMENT INTENTIONS
Mainland Chinese Real Estate Investment Overseas

When responding on their willingness to invest in specific foreign countries in 2020, 32% of investors considered the UK as a new target market. When combined
with those that were already invested in and planned to continue to hold assets in the UK, this market leads globally with over 50% of respondents.

This appetite for UK real estate was reinforced later in the survey, when 61% of investors noted that the prevailing Brexit uncertainty represented an opportunity to
invest in the UK.

Figure-13: What are your investment intentions for 2020 for the following countries and regions? Figure-14: Brexit uncertainty represents an
opportunity in the UK
55%
Newly targeting Continue investing Reduce investment
Disagree 3%
45%

35%

Neutral 35%
25%

15%
Agree 61%
5%

UK US *SEA Japan Hong Kong SAR **EU Singapore Australia South Korea Canada
-5% *SEA = Southeast Asian Countries excluding Singapore
Note: Options including “Not applicable”, but does not show in this chart ** EU = European Union Countries
In 2019, Japan, Singapore and Southeast Asian nations accounted for 19% of MCREIO investment. This growing interest was echoed in our survey with a strong showing
of investors newly targeting these markets. Surprisingly, Australia appeared unattractive. This may be explained by the fact that although Australia has been on investors’
radars for many years, MCREIO investors have struggled to deploy capital into the highly competitive market, which may have subdued their interest.

Source: Cushman & Wakefield Research China Outbound Investment Report 10

2020 INVESTMENT INTENTIONS
Mainland Chinese Real Estate Investment Overseas

Figure-15: 2020 Investment Intentions – U.S.

Some might consider it reasonable to assume that the harsh rhetoric and ongoing negotiations
30% between the USA and China over trade would have caused Chinese investors to shy away from the
25% U.S. property market. The market did see the highest number of responses indicating a proactive
reduction of exposure. However this should be noted in context, as historically the largest share of
20% capital was deployed into the U.S., attracting 30% of total MCREIO capital deployed in the past
decade according to RCA.
15%

10% When asked about trade friction reducing appetite for the USA, the response appeared fairly measured
with a combined 65% of MCREIO investors being either neutral or disagreeing on this point.
5%

0% Figure-17: 2020 Reducing Allocation by Destination

20%
Continue Newly Reduce
investing targeting Investment

15%
Figure-16: The prolonged trade dispute means
we are unlikely to invest in the U.S.

10%
Agree 35%
Disagree 26%

5%

0%
US Hong Kong UK *SEA Singapore Australia South Korea Canada Japan **EU
SAR
Netural 39% *SEA = Southeast Asian Countries excluding Singapore
** EU = European Union Countries

Source: Cushman & Wakefield Research China Outbound Investment Report 11

 DESTINATION
Hong Kong Real Estate Investment Overseas

With a stable political environment and relatively strong office rental growth compared to other global gateway Figure-19: HKREIO Disposal by Destination 2019
markets, in 2019 Singapore became increasingly popular with HK investors. Around US$1.7 billion was deployed United Malaysia
in Singapore, which crept up behind the U.S. and U.K. in terms of transaction volume. This was echoed in the Kingdom 2% Singapore
Taiwan 1%
responses from HK investors to the statement that in 2020 Singapore will become more attractive as a real 4%
2%
estate investment destination. Growing interest was also recorded in other regional markets including Australia Spain
and South Korea. 5%

Figure-18: HKREIO Investment by Destination 2019

Japan
26%
USD Millions

1,900 South Korea

18%
1,400 United Australia
States 24%
900 18%

400

(100)
United United States Singapore Australia South Korea Japan New Zealand Others
Kingdom Figure-20: In 2020 Singapore will become more
(600)
attractive as a real estate investment destination

Red bar reflects the activity by the following groups:

GAW, PAG, ARCH, ESR, Phoenix and Orion Partners (all headquartered in Hong Kong).

Dark Blue bar reflects all others, encompassing developers originating from Hong Kong and private and family office capital (some of which
may be pooled), and includes activity by institutions (e.g. HKMA) and HK registered REITS.

Light Blue bar reflects HKREIO disposal (all institutions) 50% 33% 17%
Source: Real Capital Analytics, Cushman & Wakefield Research China Outbound Investment Report 12
HKREIO OVERSEAS CAPITAL DEPLOYMENT
Hong Kong Real Estate Investment Overseas

Despite the recent challenges in Hong Kong our survey indicated that there was no major swing in investors’ appetite for global markets. Seventy-five percent of
respondents indicated that their 2020 allocations by destination would remain unchanged. With 75% of respondents also indicating that core properties in global
real estate markets were overpriced, this may be a factor subduing enthusiasm for increased overseas participation.

Figure-22: Core properties in the

Figure-21: How will your fund allocation to overseas real estate change in 2020 compared to 2019? global market are overpriced

80% 75%
70%
60%
75%
50%
40%
30%
17%
20%
10%
8% 25%
0%
Reduce Investment About the same Increased Investment

Source: Cushman & Wakefield Research China Outbound Investment Report 13

 INVESTMENT ALLOCATION
MCREIO by Asset Class

MCREIO investment was weighted to development sites and the office sector in 2019. Since 2017 our survey has identified a slow decline in appetite for the office
sector, perhaps unsurprising given the government’s stance towards the acquisition of overseas trophy assets overseas. Likewi se, with the government's tendency to
encourage value-added sectors such as R&D, investors’ interest in this sector has grown to 13%.

Figure-23: Investor Intentions by Asset Class Figure-24: MCREIO Investment by Asset Class 2019

60%

49% 2018 2019 2020

45%
42% 43% 42%
Other
39% 9%
40% 35%
31% Industrial
29% 9% Development
26% 26% Site
23% Retail
34%
10%
20% 18%
14%
12%
Hotel
6% 17% Office
21%
0%

The most stark change in sentiment since the previous survey was a spike in MCREIO investor appetite for industrial and logistics, again unsurprising given the
governments’ softer stance towards what may be considered as a value-added sector.

Source: Cushman & Wakefield Research China Outbound Investment Report 14

INVESTMENT ALLOCATION
HKREIO by Asset Class

Figure-26: HKREIO Investment by Sector 2019

For Hong Kong investors in overseas markets the office sector still remained highly attractive
recording a 56% share of overall investment in 2019. Key deals included Gaw Capital’s office
acquisitions: including the GreenOak Tokyo Aoyama Office Portfolio in Japan for US$574 Retail
million in March, and the office property at 77 Robinson Road in Singapore acquired from 8%
Citic for US$521 million.
Dev Site
The hotel sector saw increased interest, accounting for 15% of total investment by sector in 10%
2019. Notably, PAG Asia partnered with Korean asset management firm Inmark AM to
acquire the Grand Hyatt Seoul for US$481 million. Ascott REIT sold Ascott Raffles Place in Industrial
Singapore to a HK private investor for US$260 million in May. And Far East Consortium 11% Office
International acquired Oakwood Premier OUE in Singapore for US$213 million. 56%

Hotel
15%
Figure-25: Regarding your real estate investments outside of HK in 2020, what sectors do you favor?

100%

80%

60%

40%

20%

0%
Office Hotel Industrial and logistics Development Retail

Source: RCA, Cushman & Wakefield Research

Source: Real Capital Analytics, Cushman & Wakefield Research China Outbound Investment Report 15
 KEY TAKEAWAYS

1. For the first time since our survey began, in 2019 we saw the year’s disposals outweigh
Figure-27: Core properties in the global market are overpriced
acquisitions, with over US$20 billion of overseas properties being sold by mainland
Chinese investors.
60%
50% 2. We note a significant jump in interest in the UK -- with most mainland China investors
40% seeing Brexit uncertainty creating opportunity -- Japan, Singapore and other South East
30% Asian markets also saw increased interest.
20%
3. Cooling of activity is largely due to policy control and a tightened lending environment, with
10%
65% of respondents citing either or both these as a severe or significant challenge. Only
0% 13% of investors anticipate easing of either of these in the near term.
2018 2019
Agree Disagree Neutral 4. Chinese investors from either location have relatively similar appetite for markets and
sectors, though Hong Kong investor interest is more heavily weighted to the office sector,
Figure-28: 2020 Global Investment while mainland investors’ interest in industrial and R&D facilities has spiked.

100% 5. No rebound in sight, with 48% of investors planning to reduce investment in overseas
markets in 2020. Despite RCA figures suggesting a outflow of around US$21 billion from
80% the USA by mainland Chinese investors in 2019, ongoing trade friction is not as significant
a barrier as may have been reported. Only thirty-five percent of mainland based investors
60% see the trade tensions as prohibitive to ongoing investment, and just 16% plan to reduce
exposure to the US market.
40%
6. The most stark change in sector sentiment since the previous survey was a spike in
20% MCREIO investor appetite for industrial and logistics.

0%
Asia Pacific North America EMEA
Up Stable Down
Source: Real Capital Analytics, Cushman & Wakefield Research China Outbound Investment Report 16
 Francis Li Gordon Marsden Jason Zhang
International Director Regional Director Senior Director
Head of Capital Markets Asia Pacific Investment and Head of China Outbound
Greater China Advisory Services Investment Capital Markets,
francis.cw.li@cushwake.com gordon.marsden@cushwake.com Greater China
jason.lq.zhang@cushwake.com

James Shepherd Catherine Chen Carol Zheng

Head of Research Director, Research Senior Analyst, Research
Greater China Greater China Greater China
james.shepherd@cushwake.com catherine.chen@cushwake.com carol.zheng@cushwake.com

Note: Thanks to the contribution from Simon Graham.

China Outbound Investment Report 17