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News Release

Hong Kong and Macau

Pearl River Delta – A Region with Bright Prospects

Opportunities for property investors, developers and occupiers

While the Pearl River Delta (PRD) was inevitably hit by the global economic downturn due to its export-oriented economy, there were encouraging signs showing an improvement in the PRD property market as liquidity improved and the stock markets regained momentum, according to Jones Lang LaSalle. The massive scale of infrastructure constructions and the favourable policies towards residential investment are set to support economic growth and hence property demand in the long run.

Recovering Investment Sentiment

Although the near-term economic outlook remains to be challenging, investment sentiment in China has picked up well as reflected by the growth in some leading indicators. The country’s Purchasing Managers' Index (PMI) for the manufacturing sector rose for the sixth consecutive month in May, the third consecutive month that the Index stood at above 50, suggesting a rebound in producer confidence. The stock markets also saw a notable rebound over the last few months, with the Shanghai Stock Exchange Composite Index growing by over 50% since the beginning of the year, while the Shenzhen Stock Exchange Composite Index rebounding over 70% during the same period.

In Guangdong, the slowdown in economic growth is quite noticeable with the province’s GDP growing by 5.8% y-o-y in 1Q09, a marked slowdown from the 10.5% y-o-y growth registered in 2008. However, Guangzhou and Shenzhen saw better scenarios, with GDP for the two cities growing by 8% y-o-y and 6.5% y-o-y, respectively, in 1Q09. There was a slowdown in retail consumption growth across Guangzhou and Shenzhen, but not to an extent of a collapse. Indeed, the total retail sales still respectively grew by 8% y-o-y and 12% y-o-y in Guangzhou and Shenzhen during the quarter.

The residential sales market was buoyant in recent months, owing to the improved liquidity, strengthened investor confidence and the government’s beneficial policies towards residential investment. Total residential space sold in Guangzhou increased by 78% y-o-y in the first five months to 3.1 million sqm and that in Shenzhen was up 154% y-o-y to 3.1 million sqm during the same period.

‘There are signs suggesting that China’s economy is picking up and that the investment markets have been reacting positively,’ says Marcos Chan, Head of Research, Greater Pearl River Delta at Jones Lang LaSalle. ‘Although any sustainable recovery will need to be backed by stable and improving economic data, strengthened investor and occupier demand will help stabilise China’s real estate market, which will create a spill-over effect to the other economic sectors.’

Growing opportunities in southern China as the PRD moves up the value chain

Guangzhou is about to host the 2010 Asian Games, the third-largest international event in China after last year’s Beijing Olympic Games  and Shanghai’s World Expo to be held next year. Total investment on the Asian Games will reach RMB 220 billion, half of which is for metro networking. This improved infrastructure, together with the construction of some other landmark developments in the emerging Tianhe CBD, will help facelift and change the development landscape of Guangzhou.

The latest economic development framework for the PRD highlights the emergence of Guangzhou and Foshan into a larger metropolitan area. This will not only help strengthen Guangzhou’s leading role in the PRD, but also boost the region’s capacity to become one of China’s key growth engines through the synergies created by the two cities. Indeed, the combined GDP of Guangzhou and Foshan reached RMB 1.25 trillion in 2008, only slightly behind Shanghai’s RMB 1.37 trillion.

‘The broad direction is for the PRD to move up the value chain. The cities here will gradually transform to focus more on advanced manufacturing, hi-tech and other services industries, which will lead to strong office and business park space demand,’ notes Jex Ng, Managing Director at Jones Lang LaSalle Guangzhou. ‘The upcoming supply in Guangzhou and Shenzhen provides good options for occupiers who would like to capture the growing business opportunities in southern China.’

PRD Real Estate Investment Perspective

The recent years saw many MNCs basing their south China headquarters in Guangzhou and Shenzhen due to the growing business opportunities in these southern China Tier I cities and their close proximity to Hong Kong. In spite of the recent slowdown in market activity as investors and occupiers turned cautious after the financial crisis, both leasing and owner-occupier demand for quality office space in Guangzhou’s Zhujiang New Town and Shenzhen’s Futian has been strong in recent years. The relatively higher proportion of single-ownership properties in these emerging CBDs is particularly attractive to both corporate tenants and institutional investors.

‘The distinguishing advantage of the PRD commercial real estate market is its relatively low capital values compared with those in Shanghai and Beijing, not to mention Hong Kong,’ noted Dominic Chung, Managing Director at Jones Lang LaSalle Shenzhen.

The recent hike in investor confidence and market sentiment were not only noted in the residential market, but were also seen in commercial properties. However, purchasers were mainly confined to local investors, with institutional investors standing on the side, preferring to wait and see. In Guangzhou’s Zhujiang New Town, for instance, about 22,000 sqm of office and retail space in R&F Winner Plaza was bulk sold to China Development Bank for about RMB 22,700 per sqm. In Shenzhen’s Futian, about 10,000 sqm of space in Excellence Century Center was sold strata titled for a price of RMB 30,000 per sqm.

Recently, we also saw growing upgrading leasing demand from domestic companies moving into the CBD areas of Guangzhou and Shenzhen, taking the advantage of lower rentals. These companies are typically engaged in sectors that were relatively less affected by the global financial crisis, such as telecommunications and energy.

 ‘We are confident that the PRD region, with long-term fundamentals remaining strong, will offer significant opportunities for property investors, developers and occupiers in the long run,’ concluded Chung.