US Biggies Look East to Scale Up Real Estate Investment

China and India are poised to record strong momentum in retail real estate investment by 2020. Activity in established markets is going to decline from its present levels, a study by global real estate firm Jones Lang LaSalle (JLL) showed.

According to David Hand, Head of Investment for China, JLL, China is expected to be the world’s largest consumer market by 2020.

"There is no doubt that China offers an enticing and exciting proposition to investors globally. Not only is it set to become the world's largest consumer market, but China is projected to be $15 billion a year retail real estate investment market by 2020," Hand said. "The investment landscape will become more globalised, fuelled by a burgeoning middle class, rapid urbanization, strong consumption growth and significant expansion of quality retail infrastructure. It is definitely the one to watch this decade.”

An increasing number of U.S. investors are putting their money in China, as government adopts various measures to lure foreign funds into the country, states a Forbes report. Multi-national companies are being encouraged to invest in lower cost central and western states, apart from China’s coastal cities, which are important FDI destinations.

The Forbes report states that capital flow from U.S. multinationals increased 10 percent to $893 million in the first quarter.

China’s immediate neighbor India is far behind due to strict entry and exit options provided to foreign players.

"There is a clear thrust towards international benchmarks, with growing market knowledge and ever-increasing aspirations driving current and future growth," Anuj Puri, Chairman & Country Head, Jones Lang LaSalle India, told the Economic Times. "That said, the (Indian retail) sector is still hamstrung by restrictive foreign investment policies, which are reining in the country's potential for attaining faster growth." 

The study also showed that due to increased cross-border activities, the global yearly investment volume in the retail real estate sector could touch $180 billion by 2020, an increase of 50 percent from the current volume.

"The number of investable geographies has expanded globally as growth markets like China, Brazil and Turkey are attracting global investors," Arthur de Haast, Head of International Capital Group, Jones Lang LaSalle said in a statement. "Together with an improvement in the quality and availability of retail assets, rising liquidity levels and further progress in real estate transparency, the retail investment sales sector is set for further rapid globalisation."

Globalization, favorable demographics and the growth of the middle class is expected to rebalance capital flow towards the Asia Pacific. The report shows that by 2020, Asia Pacific is will account for 26 percent of global retail investment volumes, up from 22 percent currently. Whereas the Americas will account for 33 percent and the EMEA around 41 percent, the report shows.

Meanwhile, the growing retail market is being supported by an ease of access to cross-border and domestic capital, believes Michael Niemira, ICSC Vice President of Research and Chief Economist:

Many of these growing retail real estate investment opportunities - identified in the Jones Lang LaSalle report - also are being supported by an increasing number of countries adopting real estate investment trust (REIT) investment vehicles. The REIT, which provides transparency and ease of investment, has grown dramatically over the last 40 years with 27 countries already offering such financial regimes and currently another seven -China, India, Indonesia, Nigeria, Kenya, Vietnam and South Africa - considering future adoption. The ease of access to cross-border and domestic capital and strong consumer fundamentals should provide a solid platform for the growing global retail real estate markets over the next decade.