China’s outbound investors favour landmark buildings in gateway cities

Compared to their western peers, deep-pocketed Chinese property buyers have a much bigger appetite for landmark buildings in overseas gateway cities, a strategy driven more by branding than return on investment, according to a global property broker.

“Large Chinese institutional investors have a strong preference for landmark buildings in central areas of gateway cities. Some said they just want the best. Anything else seems less important,” said Henry Chin, research head of CBRE Asia Pacific.

The hunger for trophy assets is in stark contrast with global investors who are much more return-oriented, opting for “good secondary” properties – A-grade offices in decentralised areas or B-grade offices in centralised areas – or properties that have value-added potential, according to Chin.

“To be honest, some of the Chinese purchases are really a bit expensive. I think they are more driven by ‘branding’ need. They want to let the world know who they are by buying the most pricey [property],” he said.

This penchant is natural as Chinese buyers are still in the early stages of outbound investment, like their predecessors in Japan and the UAE, other analysts said. This trend provides owners of the world’s trophy assets with the best time to cash in.

In March, China’s Anbang Insurance Group agreed to purchase US-based Strategic Hotels & Resorts from Blackstone Group for US$6.5 billion, after it bought the iconic Waldorf Astoria hotel in New York for US$1.95 billion last year, a price that impressed the US industry. In May, China Investment Corporation, China’s sovereign wealth fund, agreed to acquire a 49 per cent interest in the One New York Plaza office tower for US$700 million.

CBRE data shows that China’s outbound investment to North America and Asia Pacific in the first half of the year surged 119 per cent year on year to US$14.4 billion.

Though still in their early stage, Chin particularly noted CIC and China Life Insurance’s growing maturity when it comes to property deals. They are increasingly teaming up with local corporations and asset managers, such as US-based Tishman Speyer, to select targets and strike deals.

“Why do you have to do it alone? You are much less familiar with local markets,” Chin said, adding that CIC and China Life are less inclined to acquire a 100 per cent stake in any deal. Rather, they would require their local partners to put up a small portion of the funding, making sure their interests are aligned.

He said another characteristic of Chinese investors is that they’re fond of hotels, but they need to make sure they have enough operational expertise to run such properties.