SHANGHAI'S real estate investment market ended the year with only moderate activity but improved momentum in the second half.
Property acquisitions worth more than US$10 million each exceeded 31 billion yuan (US$4.9 billion) between January and December, a decrease of 21 percent from 2011, according to research from international real estate services provider DTZ, a UGL company.
Office buildings continued to be the most popular property type, accounting for 72 percent of the city's total real estate investment, said Jim Yip, managing director of DTZ China Investment. "The local market was dominated by domestic buyers last year since overseas investors remained cautious."
En bloc deals involving domestic buyers totaled 20.8 billion yuan in Shanghai last year, accounting for 67 percent of the city's total. Those acquired by overseas investors, meanwhile, dropped 42 percent year on year to 10.3 billion yuan, DTZ data showed.
In particular, owner-occupiers made up 27 percent of en bloc deals during the 12-month period, up from 16 percent recorded in 2011.
For this year, DTZ remains upbeat, predicting that a large amount of capital will continue to flow to the office market, with buildings in decentralized areas attracting investors. Recovering sentiment in residential property investment might also be anticipated, the company said.
Alan Li, head of investment for Jones Lang LaSalle Shanghai, is also optimistic.
"Investment market activity is expected to pick up in 2013 as investors return to the market and seek out core-area, mature office and retail assets with strong income and cash flow," Li said.
The cost of credit is expected to decline, spurring demand from overseas institutional investors while domestic capital from the insurance sector will also play a larger role in the coming quarters, particularly in the Pudong New Area where high-profile office buildings are in high demand, as well as in office assets in second-tier cities, he said.
Mid to long-term outlook for city office properties remains positive despite the fact that capital values have remained flat for several quarters due to weaker rental performance.
"The expectation of investors is that core-CBD office assets may see flat or even declining rents in the near term, but in the next three to four years rents will return to positive growth territory of 5 to 10 percent per annum, driving investment returns," Li said.
"The current slowdown is viewed as an opportunity to enter the market before growth accelerates again."
Overall average rents in the city's Grade A office market remained flat in the last quarter of 2012 with growth in Pudong offset by a decline in Puxi where demand from multinational companies was subdued, according to Jones Lang LaSalle.
Investment prospects for retail properties are bright in the long term and high-quality retail assets in decentralized areas are likely to be a major focus for investors, mainly due to limited choices in core locations, Li predicted.