Q&A: ‘China has rebounded more quickly than other countries’

Consumption trends drive investment decisions in China, says Guy Fulton, managing director, real estate investments, at Canada Pension Plan Investment Board (CPP Investments).

Guy Fulton

What is CPP Investments’ strategy in China?

To follow real demand in the economy, especially when it’s based on consumption. I don’t see that changing, although the asset classes we look to invest in may change. Over the years, we’ve invested in logistics and mixed-use real estate to capture this overall demand. And that will continue, along with other asset classes that play to this overall consumption theme.

Which sectors are currently most promising in China?

Logistics and data centers have emerged as winners post-covid, given the changes in consumption habits. Covid has accelerated the increased ordering of perishable food online and the adoption of e-commerce among older consumers, both of which provide tailwinds for these sectors. The rollout of China’s 5G network will also benefit the development of data centers.

How does China’s property market compare with others in Asia as an investment opportunity?

China is different due to its size and scale. Although Japan has in the past been the largest and most liquid property market in the region by value, China’s capital markets are becoming more mature, largely due to the increased availability of local capital, particularly from the pension and insurance sectors. Ultimately, China’s real estate market will be more driven by local capital, as in other developed countries, and we’re seeing the genesis of that now.

Has covid impacted investor confidence in China real estate?

At first, many investors panicked as the full global scale of covid became apparent. Most focused on troubleshooting assets, drawing on available bank lines and protecting cashflow. China, however, has rebounded more quickly than other countries to the point where assets are now in various stages of recovery, and that’s continuing despite localized outbreaks. This recovery has been good for investor confidence.

Does its property market pose specific challenges for institutional capital?

Right now, for foreign investors it’s not being able to travel to China and view sites and assets. For CPP Investments, having an on-the-ground presence in Greater China, deep market knowledge and trusted partners locally has proven a significant advantage for us and helped us address this challenge. I also see hospitality as a sector being slower to recover until normal business travel resumes.

What’s the outlook over the next 12-18 months?

Positive, assuming overseas investors can overcome the logistical challenge of visiting China. Logistics and data centers will continue to attract capital while shopping malls will continue to recover. The office sector is well positioned as there doesn’t seem to be widespread adoption of ‘work from home’ practices, but challenges remain due to excess supply in the major markets, which could impact pricing.