The Olympics will end this weekend--a blink of the eye compared to the years China put into mounting this show. This new world powerhouse spent many tens, in fact hundreds, of billions of dollars to ready the country to put their best face forward. They built not only the various high tech, architecturally cutting edge sports venues, but also roads, subways, high speed rail, airport terminals as well as office buildings, hotels and other commercial real estate ventures. Overall infrastructure spending alone in China has approached more than $150 billion annually in recent years.
China, meanwhile, has been a favored target for opportunistic investors from the U.S. including a large group of institutions and pension funds wanting greater alpha to boost returns. Even as U.S. core funds produced outsized mid-to-high teens performance, pension funds and others began gravitating to Asia looking for more.
Well my guess is they are going to get more than they bargained for as a giant-sized Olympic hangover sets in, compounded by a flagging world economy. Even as real estate returns begin to nosedive here as the consequences set in from the continuing credit crisis, China real estate markets are poised for their own correction. The big Olympics push will be suddenly over and American consumers are pulling back big time in buying all the stuff that Chinese factories have been spewing out and shipping over here.
I always questioned the headlong rush by some investors into China, a hardly transparent or predictable marketplace in the end controlled by a communist dictatorship, which moves millions of people in and out of places on command and stomps out discomfiting dissent. When things go wrong, foreign investors may not find a friendly hand from arbitrary leaders, bureaucracy and institutions. Sure it was alluring--all the potential, the unparalleled urban growth, and emerging industrial juggernaut unbound. But now underneath the gloss and sheen are basic economic realities--the development growth track accelerated by the Olympics needs to redirect as global demand ebbs temporarily. And some investors may get caught in a dislocating transition.
After the fireworks end, the light shows dim out, and the athletes go home, China may not be such a happy, uplifting place, if it ever were.
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Jonathan D. Miller
A marketing communication strategist who turned to real estate analysis, Jonathan D. Miller is a foremost interpreter of 21st citistate futures – cities and suburbs alike – seen through the lens of lifestyles and market realities. For more than 20 years (1992-2013), Miller authored Emerging Trends in Real Estate, the leading commercial real estate industry outlook report, published annually by PricewaterhouseCoopers and the Urban Land Institute (ULI). He has lectures frequently on trends in real estate, including the future of America's major 24-hour urban centers and sprawling suburbs. He also has been author of ULI’s annual forecasts on infrastructure and its What’s Next? series of forecasts. On a weekly basis, he writes the Trendczar blog for GlobeStreet.com, the real estate news website. Outside his published forecasting work, Miller is a prominent communications/institutional investor-marketing strategist and partner in Miller Ryan LLC, helping corporate clients develop and execute branding and communications programs. He led the re-branding of GMAC Commercial Mortgage to Capmark Financial Group Inc. and he was part of the management team that helped build Equitable Real Estate Investment Management, Inc. (subsequently Lend Lease Real Estate Investments, Inc.) into the leading real estate advisor to pension funds and other real institutional investors. He joined the Equitable Life Assurance Society of the U.S. in 1981, moving to Equitable Real Estate in 1984 as head of Corporate/Marketing Communications. In the 1980's he managed relations for several of the country's most prominent real estate developments including New York's Trump Tower and the Equitable Center. Earlier in his career, Miller was a reporter for Gannett Newspapers. He is a member of the Citistates Group and a board member of NYC Outward Bound Schools and the Center for Employment Opportunities.
