China Jumps to Fourth Spot Among Asian REIT Markets as Mainland Listings Grow

Mainland China’s pilot infrastructure REIT program grew by 80 percent in value during 2022, propelling the economic giant to the fourth spot among real estate investment trust markets in Asia as many of the region’s more development markets saw steep drops in valuation.

The total market value of the 23 REITs listed on Chinese exchanges (C-REITs) reached $12.37 billion in total market value as of 31 December 2022, accounting for 4.7 percent of Asia’s $264 billion REIT market. This scale moved China up three spots among Asian REIT markets from its seventh place ranking in 2021, according to a report released this week by Cushman & Wakefield.

When China’s first REITs focused on infrastructure assets such as roads and bridges, the catalogue of listed trusts soon expanded to include warehouses and later rental housing. With a recent decision to allow listing of some commercial assets, Cushman & Wakefield’s analysts see opportunity for the market to grow further.

*As China’s public REITs pilot is now expanding to include the retail sector, we can expect the C-REIT market to diversify and further prosper, in turn helping to stimulate consumption and drive domestic demand,” said Andrew Chan, managing director and head of valuation and advisory services for Greater China at the property agency.

Pilot Scheme Expands

There were 17 new REITs listed on mainland exchanges from March 2022 through June of this year, bringing the country to 28 REITs valued at RMB 87 billion ($12.06 billion) as of end June, although this total represented a 10 percent slide from the trusts’ initial issuance value of RMB 97 billion, according to the report.

Just sixteen of the REITs hold real estate assets, including seven industrial park REITs, four affordable rental housing trusts, three logistics vehicles, and two dedicated to manufacturing facilities.

By average distribution yield, a metric used to measure REIT performance, the trusts improved to an average of 4.2 percent by the end of June from just 3.3 percent a year ago when there were only nine active vehicles.

“The overall infrastructure REIT market in mainland China experienced stable development in 2022, demonstrating continued popularity with investors,” Cushman & Wakefield said, adding that the emergence of the C-REIT regime has altered the REIT market region-wide.

China REIT Gathers Steam

The mainland REIT regime has rapidly grown in favour with corporate giants and property investors active in China as a fresh avenue for getting capital back out of their existing properties.

Among the players entering the market recently is JD Property which co-sponsored Harvest & JD Storage Logistics REIT. The trust had a RMB 1.76-billion IPO on the Shanghai stock exchange in February.

In June, GLP C-REIT, the first logistics trust to list on the Shanghai bourse, successfully raised RMB 1.85 billion in a follow-on equity offering to fund its acquisition of three facilities from its sponsor, Singapore-based GLP.

DNE Group, a new economy infrastructure specialist backed by Warburg Pincus, was also among the early entrants to the market with the debut of its D&J New Economy Industrial Park REIT on the Shanghai stock exchange last year.

Hong Kong-listed logistics giant ESR, also backed by Warburg Pincus, is in the process of applying for a C-REIT that will initially hold three of its logistics assets in eastern China’s Jiangsu province.

Valuations Slide

China’s REIT market trailed only Japan, Singapore and Hong Kong in Cushman & Wakefield’s regional rankings for 2022 with those three countries accounting for a combined 80 percent of the region’s REIT value. The big three maintained their dominance despite rising interest rates and heightened economic uncertainties which have caused their combined REIT markets to shed some $45 billion in combined value last year.

During 2022 the pan-Asian REIT market suffered a 14.7 percent drop in market valuation from a year earlier, mainly due to a surge in financing costs and the lingering effects of the COVID-19 pandemic on commercial and hotel assets, according to Catherine Chen, capital markets research for Asia Pacific at Cushman & Wakefield.

“However, these headwinds are becoming increasingly offset by growing market attention to new economy sectors, including modern logistics facilities and data centers, as well as living sectors, extending from multifamily assets to senior care facilities,” Chen added.

Japan maintained its spot as Asia’s largest REIT market with a market worth $120.89 billion across 61 trusts as of end-2022. Despite that valuation being down 18 percent from a year earlier, the country still accounts for 46 percent of the region’s REITs by value.

After sliding 14 percent in value during 2022 the Singapore bourse still ranked second in Asia with its 40 listed REITs combining for a value of $73.13 billion, which was equivalent to 27.7 percent of the regional market.

During 2022 Hong Kong’s 11 publicly traded REITs declined to $24.17 billion in value, which was down 20 percent from a year earlier, but still sufficient to make the city’s stock exchange home to 9.2 percent of Asia’s REIT market.