China’s Lesser-Known Cities Offer Great Investment, Development Potential: ULI Report

Sixteen Markets in China Cities Survey Surpass Many in U.S., Europe for Prime Real Estate Opportunities

For more information, contact Trisha Riggs, priggs@uli.org; 1-202-624-7086

WASHINGTON (July 14, 2011) — China’s lesser-known cities such as Chengdu and Chongqing are growing rapidly, providing more lucrative investment and development opportunities than those available in most cities in Europe and the United States, according to a new report from the Urban Land Institute (ULI).

A recent survey gauging investment and development prospects for 16 of China’s larger cities (those with a population of at least 2.4 million) found the majority to be “of strong interest” to investors active in the region. The top ranked city for investment possibilities was Chengdu, which scored 6.57 on a scale of one to nine (nine being highest), while Shanghai, at 6.33, Chongqing, at 6.23, and Beijing, at 6.22, followed closely behind. However, all the remaining cities in the survey – Nanjing, Wuhan, Dalian, Qingdao, Tianjin, Wuxi, Shenzhen, Suzhou, Hangzhou, Guangzhou, Changsha and Shenyang – received favorable ratings of between 5.65 and 6.16.

The China Cities Survey builds on the Emerging Trends in Real Estate® report published each year by ULI and PricewaterhouseCoopers. Three versions, for the Americas, Europe and Asia are published. Only nine of the 51 U.S. cities and seven of the European cities included in the 2011 Emerging Trends publications achieved an investment rating of 5.65 or higher, emphasizing the extraordinary appeal of Asian markets as a place to invest and develop.

The explosive growth of the cities in the survey (half of the 16 have populations exceeding 5 million) is “resulting in a building boom that is difficult for many outside of China to comprehend,” the report states. The survey was intended as a pilot study to focus initially on the cities commonly perceived to be among the strongest economically.

The survey, undertaken in the last two weeks of March 2011, included 98 land use professionals; nearly half of whom are based in China, with just over one-third located in Hong Kong. “It is an accepted fact that Western global real estate firms are behind their direct competitors, both international (Asia Pacific) and domestic by almost one full wave,” one respondent observed.

In terms of development potential, the survey found great enthusiasm among participants, reflecting the high demand for new construction to accommodate the cities’ surging growth. As a group, the cities all scored higher for development than investment prospects. Chengdu was rated highest for development, with a rating of 6.95, followed by Chongqing, at 6.83; and Wuhan, at 6.64. None of the 16 cities ranked below 6.03. This is a sharp contrast to the findings for the 2011 U.S. and Europe Emerging Trends reports, in which no city scored above 6.00 for development prospects. This suggests relatively lackluster construction activity for the U.S. and Europe, where the economy in both countries continues to lag, compared to soaring activity throughout Asia.

Overall, the retail and industrial/distribution sectors in the 16 cities received the most “buy” recommendations, rather than “hold” or “sell,” again reflecting the high expectations of survey participants for investment and development prospects. Retail and industrial were followed by the apartment residential, hotel and office sectors.

The report notes that even within an industry characterized as highly local, China’s markets stand out as among the most localized. China “is probably one of the most localized, if not the most localized real estate markets in the world, with each city representing its own investment environment, not necessarily tied to national policy,” said one survey participant. The report cites the American Business in China 2011 White Paper, published by the American Chamber of Commerce in the People’s Republic of China (Am-Cham China): “Laws and regulations and local implementation play as large a role in shaping the business climate as the directives issued by the central government.”

In the region covering Central and Western China, Chengdu received the highest “buy” recommendations for retail, apartments, hotels and office properties. According to the Am-Cham China report, Chengdu’s banking, tourism, information technology and resource industries are “booming and attracting key players in these sectors every year.”

Another strong market in the Central and Western China region: Chongqing, which participants rated second in “buy” recommendations for the retail, hotel and office sectors, and third for apartment residential and industrial/ distribution. From the Am-Cham China paper: “The city’s tradition of being a manufacturing and industrial center continues today, with its increasing prominence in the auto, military, equipment and chemical sectors.”

Among the cities in other regions:

  • Eastern China – Shanghai, China’s most populous city, was the highest ranked city in this region for investment prospects. It received high investment ratings, but participants advised holding, rather than buying, hotels, apartment and offices. It received moderate “buy” recommendations for retail and industrial properties.
  • Northern China – Beijing, the second largest city in China, was the highest ranked city for this region for investment prospects. It ranked third behind Chengdu and Chongqing in “buy” recommendations for the office sector. Participants were evenly split between buying and holding for office, industrial and retail properties, and clearly favored holding hotels and apartments.
  • Southern China – The two cities in this region that were included in the survey – Shenzhen and Guangzhou are among the most populous in the country, but also the lowest rated for “buy” recommendations. This likely reflects the relative maturity of these markets, in that investors are already heavily active in virtually all property sectors.

Survey respondents showed great enthusiasm for niche or emerging market opportunities in China. With China’s senior population soaring, resorts and senior housing (some of it patterned after resorts) received the highest rating for investment prospects; business park development, spurred by the surge in auto use, was also rated favorably. Other potential opportunities: student housing and cold storage – both related to accommodating China’s rapid urbanization.

NOTE TO REPORTERS AND EDITORS: To interview a ULI member with expertise in China’s real estate markets, please contact Trish Riggs, priggs@uli.org, 202-624-7086 (U.S. contact) or John Fitzgerald, john.fitzgerald@uli.org, +852-6901-2865 (Asia contact).

About the Urban Land Institute
The Urban Land Institute (uli.org) is a global nonprofit education and research institute supported by its members. Its mission is to provide leadership in the responsible use of land and in creating and sustaining thriving communities worldwide. Established in 1936, the Institute has nearly 30,000 members representing all aspects of land use and development disciplines.