The significance of development sites in global real estate transactions

Habitat International 66 (2017) 117e124

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The significance of development sites in global real estate transactions Graeme Newell a, *, Stanley McGreal b a b

School of Business, University of Western Sydney, Australia School of the Built Environment, University of Ulster, UK

a r t i c l e i n f o

a b s t r a c t

Article history: Received 2 August 2016 Received in revised form 26 April 2017 Accepted 9 June 2017 Available online 15 June 2017

This paper examines the significant contribution that development sites make to total real estate transaction activity at a global, regional and country-specific level over 2007e2014. By assessing over 216,000 major real estate transactions worth in excess of $6.35 trillion, development sites are shown to account for over $2.0 trillion or 31.6% of global real estate transaction activity. Regional and country differences are highlighted, particularly in the Asia-Pacific emerging real estate markets, with the significance of development sites in China specifically highlighted. The analysis shows that China accounted for $1.6 trillion in development site transactions or 80% of development site transaction activity globally over 2007e2014, with development sites in China being a key catalyst to providing the urban infrastructure and fabric for China's future economic growth. © 2017 Elsevier Ltd. All rights reserved.

Keywords: Development sites China Real estate transaction activity Property development Global context

1. Introduction With increased urbanisation and economic growth, emerging real estate markets are playing a more significant role in the global context. In particular, the emerging markets in the Asia-Pacific region are expected to increase their market share of the investable real estate universe from 10% ($2.6 trillion) in 2011 to 23% ($12.8 trillion) in 2021 (Pramerica REI, 2012). Importantly, in this context, the development side of real estate provides the catalyst for the fabric of this economic growth through the delivery of office, retail, industrial, hotel and residential real estate. While the significance and role of capital flows to the income-producing commercial real estate sectors has been widely researched in the literature (Newell, Adair, & McGreal, 2010, 2013) equivalent research concerning transaction activity of development sites is not available and represents a significant gap in the literature base. This paper in examining development site transaction activity over the period 2007e2014 seeks to address this knowledge gap and provides a global, regional and country-specific analysis. In this context, the paper seeks to set a strategic understanding of the scale of development activity by assessing over 216,000 major real estate transactions cumulatively amounting to $6.35 trillion in

transaction value drawn from the Real Capital Analytics (RCA) database. Much of the existing real estate research has tended to focus on investment, in particular the size and scale of the investment universe including direct and indirect mechanisms in the private and public markets. Thus, the originality of this paper stems from its different focus, one orientated on the value of development sites and given its importance in this regard, specific attention is directed to China whose land policy may potentially act as a model for other emerging economies in seeking to lever growth. The paper is structured as follows. In section 2, the underpinning literature is assessed. However, this is very sparse on the scale and value of development site transactions and is dominated by papers on the institutional context, brownfield development and re-use, sustainable development, property development risk management and property developer behaviour. Section 3 reviews the situation in China regarding development and underlying themes relevant to the property development process. Section 4 provides details on the underpinning data and methods used in the analysis. Section 5 highlights the significance of development sites globally and section 6 specifically relates to development sites in China. Conclusions and strategic implications for development sites in China and globally are drawn in Section 7. 2. Property development: a literature perspective

* Corresponding author. E-mail addresses: [email protected] (G. Newell), [email protected] (S. McGreal). http://dx.doi.org/10.1016/j.habitatint.2017.06.006 0197-3975/© 2017 Elsevier Ltd. All rights reserved.

The literature on development, particularly from the UK and US perspectives, has focussed strongly on sustainability and the re-use

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of brownfield sites. For example, in relation to development sites, Adams, De Sousa, and Tiesdell (2010) have addressed the degree of urban change and deindustrialisation in advanced economies and the legacy of vacant and derelict land. Increasingly, such sites are seen as representing significant development opportunity, though highly contaminated sites bring significant additional costs. Referring to US evidence, Adams et al. (2010) indicated that in the first 10 years of its inception, the Brownfields Program had levered more than $6.5 billion in brownfield land cleanup, with redevelopment funding creating 25,000 new jobs. Importantly, Adams et al. (2010) argue that the strategic reconceptualization of brownfield land as a development opportunity occurs only if there is sufficient confidence for such development to be seen as a business opportunity. While brownfield sites can yield significant returns, they also pose particular problems. In an earlier study of 80 large redevelopment sites in four British cities, Adams, Disberry, Hutchison, and Munjoma (2001a) found that ownership constraints disrupted plans to use, market, develop or purchase sites with significant impact in relation to land assembly, the speed and timing of development and frequently has required either state acquisition or intervention to bring the sites into commercial use. Furthermore, ownership constraints (Adams, Disberry, Hutchison, & Munjoma, 2001b) reflect the institutional context within which development has to be delivered, the distinctiveness of land as a commodity, the imperfect nature of the land market, behavioural characteristics of landowners and the complex bundle of the property rights in land. In addressing these complexities, Healey (1992) proposed an institutional model of the development process which recognised the variety of agencies, relations, activities and events that are involved in development projects. Similarly, Henneberry and Parris (2013) argue that the context within which development projects are identified, initiated and pursued embraces a mix of actors of differing character. Other advocates of the institutional context, Guy and Henneberry (2000) argue that more attention needs to be given to interests of the production side of the development process, arguing that a key determinant is the relation between pricemaking and price-taking in the property market, with property developers basing their decisions on the market signals provided by prices. Drawing upon an earlier paper by Antwi and Henneberry (1995), the point was made that the crucial influence on developers’ decisions was the way in which they formulate their expectations of development values, costs and profitability. Significantly and pertinent to this paper, Guy and Henneberry (2000) argue that culturally-based perceptions and evaluations of urban and regional risk and return influence the demand for and price of property. They also highlight the very different approaches to understanding the market taken by local property actors as they engage with the national economic frameworks set by investors. Fisher and Robson (2006) also base arguments around Healey's institutional approach, with property development seen as a complex process that involves multiple drivers, stakeholders and contributions from many disciplines. The authors make the observation that the development process is not abstract, but relates to a real site with location and physical character and legal ownership of sites. Similarly, Lizieri and Pain (2014) refer to the complexities that arise in heavily developed markets including site assembly, infrastructure and planning issues arising from the demand for large technologically advanced buildings. Property markets are seen as fundamental to development, though how this impacts on individual sites depends on the local, physical and institutional context. In this context, the work of Coleman, Crosby, McAllister, and Wyatt (2013), who argue that the techniques used to support decisions on pricing of real estate development opportunities have not been subject to detailed

empirical investigation, examination and evaluation, is pertinent. Coleman et al. (2013) point out the absence of literature in development appraisal compared to that in the investment sector, with the value of a development site taken as the monetary residual or surplus available after the site has been developed. Bryson and Lombardi (2009) argue that the property development industry is based on a business model constructed solely around profit maximization and that the need to integrate sustainability into the business models of development companies is promoting change. They maintain that proactive firms have the opportunity to target new markets based on the exploitation of various forms of sustainable products and processes and that deriving social benefits from private sector development has become an important element in public-private development negotiations. Incorporating sustainability into the property development process is seen to enhance product differentiation, attract tenants and investors who have incorporated corporate social responsibility into their business practices and reduce long-term running costs which, in turn, plays an important role in negotiations over sites and potentially enhance the long-term value of the development. However, Dixon (2006) suggests that the development industry seems ill at ease with precisely how sustainable development can be implemented in brownfield schemes and argues (Dixon, 2007) that innovation and the uptake of sustainability principles are characteristics encountered amongst developers who are looking beyond a profit motive. In taking a more global perspective, Wood (2004) considers the extent to which a scalar transformation through, or as a consequence of, globalisation is taking place within the development industry. Wood (2004) argues that while real estate service providers and investment activity have become increasingly globalised, the same has not happened to property developers per se, though it is acknowledged that the relationship between financing and real estate development is more complex and may involve significant international activity as development firms operate in national and international markets for capital. Likewise, Wood (2004) with reference to the US argues that the property development industry is culturally linked to local networks which operate as conduits through which information is exchanged. Following a similar line of argument, Charney (2007) with reference to Toronto illustrates the fragmented but often local nature of development, drawing distinction between downtown core developments where, due to complexities of fragmented land ownership and higher costs, only larger developers were involved in bringing forward projects, whereas in suburban centres local and smaller developers would follow opportunistic sites and projects depending on their attitude to risk. Charney (2007) considers that maintaining and fostering relations to local agents including the municipality is of equal importance to the underlying economic fundamentals. The complexities of development are further magnified in emerging markets, where less transparency and local interests need to mediate with those of international investors and global financial flows. In the case of India and the case study city of Bangalore, Halbert and Rouanet (2014) discuss how policy changes implemented in 2005 have reduced the minimum size of development projects to 50,000 m2 for commercial developments, thereby increasing the number of development sites, while still supporting the potential for large scale property projects. The authors describe a complexity of actors in the development process with a multiplicity of local interests and in which foreign investors through transcalar territorial networks forge partnerships in bringing forward sites to achieve development objectives. Likewise, David and Halbert (2014) discuss how foreign investors in Mexico need to build coalitions and rely on other actors in an opaque

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market, in which plots of land/development sites are subject to legal conflicts regarding title and land assembly. Such issues, title and land policy reform, are particularly pertinent to the world's largest growing economy, China, which is considered in more detail in the next section of the paper. 3. Property development in China Several papers have discussed the rapid urbanisation process that has taken place in China (for example: Chen, Chen, Guoliang, & Tian, 2016; Ding & Lichtenberg, 2011; Huang, Li, & Hay, 2016; Qian, 2013; Tian, 2015; Wu & Zhang, 2011; Yang, Xu, & Shi, 2017; Zhang, Fan, & Mo, 2017). In particular, the paper by Chen et al. (2016) highlights how rapid expansion during the period 2006 to 2012 was 1.15 times higher than that proposed in the General Land Use Plan. While some of the generic issues relating to development discussed in the previous section of this paper, for example sustainable development (Wei, Huang, Lam, & Yuan, 2015; Yang et al., 2017), land financing (Tian, 2015) and governance issues (Huang et al., 2016) are of equal relevance in the Chinese market, many of the challenges facing China arise from the pace of urbanisation. The latter has resulted in a body of literature which has largely focused on the land development process in China (Hao, Sliuzas, & Geertman, 2011; Wu & Yeh, 1997; Xu, Yeh, & Wu, 2009; Yeh & Wu, 1996), land policy reform (Ding, 2004), land development planning legislation (Ng & Xu, 2000; Zhu, 2013), land markets (Ding, 2004; Yeh & Li, 1999), urbanisation and urban redevelopment (Lin, 2007; Wang, Wang, & Wu, 2009; Zhu, 2002), green property development (Zhang, Platten, & Shen, 2011a), regional development (Sun, 1998) and developer behaviour (Leung, Hui, Tan, Chan, & Xu, 2011; Zhang, Tan, Shen, & Wu, 2011b). Significantly, none of the existing literature on property development in China has considered development site transaction activity in China, rather the literature focuses on how the development of real estate and land markets (Qian, 2013; Zheng, Wang, & Cao, 2014) flowing from the land reform policies (Ding, 2003; Ding & Lichtenberg, 2011; Du, Thill, Feng, & Zhu, 2016; Yan, Ge, & Wu, 2014) of the late 1980s has completely changed the context in which land development has taken place. For example, Wu and Yeh (1997) discuss the spatial changes that have occurred and how redevelopment in the city centre of Guangzhou has been spurred by market forces; notably the introduction of the concept of land values with commercial activity willing to pay higher prices to acquire land. These authors also articulate how land value capture has become an important source of local revenue. In a more recent analysis, He, Huang, and Wang (2014) extend this argument, illustrating how land has been used as a tool to attract foreign investment as a means of funding infrastructure improvement and indirectly triggering economic growth. They articulate how the relationship between land use change and economic growth is rooted in China's land ownership and land use right systems. Local authorities (Ding & Lichtenberg, 2011; Liu et al., 2008; Yan et al., 2014; Zheng et al., 2014) are seen to have played a pivotal role in the development process. As discussed by Du et al. (2016), local governments have used rural land expropriation into a “lucrative business”, with the revenues generated significantly bolstering the finances of local governments, with land financing becoming a very powerful tool (Tian, 2015). According to Ng and Xu (2000), local government has tended to focus on economic considerations rather than planning matters in taking decisions on development, with urban spaces being contested areas between different development interests. Zhu (2013) makes a similar point in arguing that the goal of local municipal governments is to advance development strategies as a means of stimulating growth and local fiscal capacity,

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often in the context of ambiguous land rights and a land market characterised by disorderly competition and weak regulatory control. The scale of change and the pace of activity was captured by Lin (2007) who notes that land sales, more formally leasing of land use rights, contributes between 30 and 70 per cent of municipal revenue and has become a source of capital to finance urban development. However, as observed by Du et al. (2016), the land expropriation policy is not without controversy and has resulted in enhancing the value gap between the compensation paid for rural land and the price of serviced land. Also in an earlier study, Zhu (2002) points out that ambiguous property rights arising from gradualism in reforms did not lead to the efficient allocation of resources with impact upon the operation of the emerging real estate market through protracted negotiations between local governments, land holders and developers. The ebb and flow of state intervention in land management is a recurring theme in the literature. Wu (2009) discusses the trend of recentralisation, whereby the central government has taken back some of the functions that had been previously decentralised as a response to the unregulated land market that had blossomed while, at the same time, allowing land to be transacted through different approaches. Xu et al. (2009) argue that land development is becoming more sophisticated and is constantly being redefined and, to a greater or lesser extent, requires the input of the state either directly or indirectly as a facilitator of the process. In their analysis, China is viewed as having moved from state allocation to commodified distribution in which different forms of sale and leasing, coupled with local initiatives, is balanced out with reregulation by the state. Tian (2015) makes a similar point, suggesting that the intertwining of land financing and urbanisation has resulted in a new way for the state to be involved in land commodification. The land development process is not without problems. Atherton and Smallbone (2013) refer to institutional deficiencies and services to enhance private enterprise performance as being immature from both demand and supply-side perspectives. Yan et al. (2014) argue the need for reform of the land supply system, suggesting that if land use rights could be transferred from existing urban users to developers that processes will be simpler and less time-consuming. Leung et al. (2011) outline the costly and timeconsuming process that real estate developers have to embark upon before the commencement of a project and in the case of overseas developers, the need to either acquire the equity interest of a local company through an equity joint venture or a cooperative joint venture with a Chinese partner. However, overseas developers are perceived to bring management ability, financial expertise, better information systems, quality and brand reputation, but lack knowledge of the local culture, market system, property rights and the legal system (Bao, Chong, Wang, Wang, & Huang, 2012). This literature review has clearly identified the research gap in quantifying the significance of development site transactions in the fuller commercial real estate context; particularly from a China perspective. This is the focus of the subsequent analysis in this paper. 4. Data and methodology In seeking to analyse the scale and value of development sites internationally and also within China, the paper specifically draws upon global commercial property transactions assessed over the period 2007e2014 using the Real Capital Analytics (RCA) database. RCA is an independent US-based property research organisation which tracks the sale of commercial property and development sites valued at a minimum transaction of $10 million. RCA currently collects data for over 75 countries in the Americas, Europe, Middle

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East and Africa (EMEA) and Asia-Pacific (see Table 1) and unlike other leading commercial property transaction databases, RCA specifically includes development site transaction information. To ensure data integrity and comprehensive reliable information, RCA tracks transactions via published reports, public filings, industry relationships and leading data partners in specific markets, making the database the largest and most comprehensive available and one that is used extensively by major institutional property investors and the research community. The RCA database is relatively new, with 2007 the first year for which there is sufficient coverage to permit detailed analysis. In 2007, the RCA database comprised over 32,200 properties with a total transaction value of $1.03 trillion. This database, in capturing the scale of the market immediately before the Global Financial Crisis, is significant in providing a benchmark of capital flows in the property sector. By comparison, the number and value of transactions captured by the RCA database for 2008 was approximately half of that for 2007. For 2011, the RCA database tracked sales on 21,237 properties with a total transaction value of $755 billion, still substantially below that for 2007. By 2014, in a post-GFC recovery context, this sees 35,051 properties transacted at $1.14 trillion. Over the full period of analysis of 2007e2014, this saw 216,950 transactions at $6.35 trillion forming the basis for the property transaction analysis in this paper. RCA data has been utilised in a number of other studies and is increasingly recognised in research circles as the leading database in the real estate transaction space. To illustrate the diversity of research that has employed RCA data, examples include transaction activity during the GFC in Asia (Newell & Razali, 2009), crossborder investment flows into European real estate (Newell et al., 2010), investment transactions in the retail sector in major Australian capital cities (McGreal & Kupke, 2014), capital market flows into Australian commercial real estate (Newell et al., 2013), global investment activity in the hotel sector (Newell & McGreal, 2015) and an analysis of global office investment (Lizieri & Pain, 2014). Hence the adoption of the RCA database for this study given its depth, coverage of real estate transactions, its global dimension, robustness and reliability that can be placed on the data. The methodology underpinning this paper is quantitative in nature with the analysis, descriptive statistics of market share in volume and money terms, based upon transaction evidence from the RCA database. The analysis is presented at different geographical scales, firstly examining the transaction for development sites at a global level, followed by a specific focus on China. 5. Development sites in the global context The first phase of the analysis is at a global level and sets a perspective on the magnitude of development site transactions by volume and in money terms over the period 2007e2014 (see Table 2). The significance of development site transactions is clearly highlighted by the scale of the transaction evidence amounting in total to over $2 trillion, with development sites accounting for

Table 1 Regional analysis of transactions: 2007e2014. Region

Americas EMEA Asia-Pacific Global

Number of transactions

Value of transactions

#

%

$

%

84,131 76,420 56,399 216,950

38.8% 35.2% 26.0% 100%

$2,068B $1,673B $2,603B $6,350B

32.6% 26.3% 41.1% 100%

Source: Authors' compilation from RCA (2015).

Table 2 Property type analysis of transactions: 2007e2014. Property type

Office Retail Industrial Apartments Hotel Development sites Global

Number of transactions

Value of transactions

#

%

$

%

44,324 51,399 29,824 34,268 14,559 42,576 216,950

20.4% 23.7% 13.7% 15.8% 6.7% 19.6% 100%

$1,830B $945B $470B $719B $382B $2,004B $6,350B

28.8% 14.9% 7.4% 11.3% 6.0% 31.6% 100%

Source: Authors' compilation from RCA (2015).

19.6% (by number) and 31.6% (by transaction value) of all global sales in the investment market. Development sites constitute the largest sector by value, eclipsing office in second place ($1.8 trillion; 28.8%) and retail in third place ($0.9 trillion; 14.9%), yet in terms of real estate research literature, research relating to investment into office property dominates, with little focus on development or development sites. In this context, the current paper in examining the magnitude of the development sites market is innovative in seeking to establish more information and transaction-based evidence on one of the least transparent sectors in real estate. The analysis identifies clear regional differences regarding the role of development sites. The Asia-Pacific region accounts for 84.5% (by number) and 91.3% (by value) of all development sites globally, significantly ahead of the Americas (9.1% and 4.5%) and EMEA (6.4% and 4.2%) in transaction volume and money terms respectively. This huge differential reflects the significant growth in many of the emerging markets in the Asia-Pacific region, notably the growing and transforming market in China, as articulated in Section 3 of this paper. Within the Asia-Pacific region, development sites accounted for 29,817 transactions at $1829 billion; representing 63.8% by volume and 70.3% in money terms of total transaction activity in the region. Reflecting the global picture, development sites are clearly the most significant sector in the Asia-Pacific region, well ahead of the office sector (15.2% in money terms) and retail sector (7.0% in money terms). In contrast, the significance of development sites is less evident in the Americas (4.6% by volume and 4.4% in money terms), well behind all of the other sectors; for example, office takes 33.9% and retail 16.8% in money terms. Similarly, for EMEA, the significance of development sites was much less evident (3.6% by volume and 5.1% in money terms), well behind all other sectors (for example, office at 43.6% and retail at 24.5% in money terms). These data also reflect the more significant role of the income-producing commercial real estate sectors, traditionally office, retail and industrial, in the developed mature markets in the Americas and EMEA. Analysis at an individual country level highlights the major differences between the developed and emerging markets globally, as well as regional differences (see Table 3). Amongst the developed markets, the level of development sites measured in dollar terms was typically up to 10%, but variable - the US (4.5%), Canada (5.8%), UK (4.1%), Germany (4.8%), France (1.5%), Australia (9.6%), with Japan slightly greater (13.1%). Amongst the emerging markets, the value of development sites (in monetary terms) is substantially higher. For example, Hong Kong (34.2%), Singapore (43.5%), Malaysia (53.2%), Taiwan (50.6%) and South Korea (33.4%), highlighting the significant role that real estate development plays in several Asian countries as these markets grow their real estate infrastructure to facilitate their economic development. However, the stand-out Asia-Pacific countries for the significance of

G. Newell, S. McGreal / Habitat International 66 (2017) 117e124 Table 3 Regional significance of development sites: 2007e2014.a Region Americas US Canada Brazil Mexico EMEA UK Germany France Sweden Netherlands Spain Italy Poland Russia Asia-Pacific Australia Hong Kong Japan Singapore Malaysia China Taiwan South Korea India New Zealand Total

$

Percentage of country transaction value

$84B $8B $5B $1B

4.5% 5.8% 15.9% 8.4%

$21B $16B $3B $1B $1B $6B $1B $3B $14B

4.1% 4.8% 1.5% 1.2% 1.1% 8.2% 2.7% 9.3% 21.4%

$15B $47B $37B $46B $13B $1,600B $26B $25B $21B $1B $2,004B

9.6% 34.2% 13.1% 43.5% 53.2% 93.1% 50.6% 33.4% 72.8% 7.0% 31.6%

a Selected countries only. Source: Authors' compilation from RCA (2015)

development sites are China ($1.6 trillion; 93.1% of transaction value) and India (72.8% of transaction value); well above the AsiaPacific average of 70.3% and global average of 31.6%. Fuller details concerning the significance of development sites in China are provided in the next section. 6. Significance of development sites in China With over $1.6 trillion in development site transactions in China over 2007e2014, the RCA data captures the significant economic growth and infrastructure enhancement seen in China in recent years, as China has established the fabric of its economic and social infrastructure. As the literature section has articulated, China has adopted the strategy that sales of development sites can be used as a vehicle to promote economic growth, with the success of this policy reflected in the various parameters relating to social, economic, financial and real estate market growth (see Table 4). With six cities having populations of over 10 million and a total urban population that is now over 55%, China has seen a significant increase in its rate of urbanisation (3.05% p.a.). While China's GDP growth has slowed, the current level of 6.9% real growth in 2015 still sees China as the leading economy in Asia, with growth rates similar to that of India (7.3%) and exceeding that of Indonesia (4.8%) and South Korea (2.6%) (JLL, 2016b). This economic growth has been supported by improvements in China's real estate markets. All four tiers of China's real estate markets are now seen as semi-transparent and ranked 33rd (Tier 1), 49th (Tier 1.5), 55th (Tier 2) and 66th (Tier 3) of the 109 markets assessed globally, having improved from low transparency previously (JLL, 2016a). In comparison, other Asia-Pacific real estate market transparencies include those classified as transparent markets (Singapore: 11th, Hong Kong: 15th, Japan: 19th, Taiwan: 23rd, Malaysia: 28th), semi-transparent markets (India e Tier 1:

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36th, Thailand: 38th, India e Tier 2: 39th, South Korea: 40th, Indonesia: 45th, Philippines: 46th, India e Tier 3: 52nd), low transparency markets (Vietnam: 68th, Sri Lanka: 69th) and opaque markets (Myanmar: 95th). Amongst the Asia-Pacific real estate markets, only Australia (ranked 2nd) and New Zealand (6th) are classified as high transparency markets (JLL, 2016a). Furthermore, in terms of rapid progress, China has 5 of the top 10 cities globally in JLL's City Momentum Index (e.g.: Beijing: 3rd, Shenzen: 4th, Shanghai: 5th); based on the ten criteria of real estate prices, real estate investment, construction, corporate activity, economic output, environment, education, technology and R and D, connectivity and population (JLL, 2015). Significantly, China is the third largest investable real estate market globally (Pramerica REI, 2012), with Shanghai ranked as the 19th most active real estate market globally and the 5th most active Asia-Pacific real estate market in 2014 (RCA, 2015). Major fund managers have also set up unlisted real estate funds to enable institutional investors such as pension funds and sovereign wealth funds to access China's real estate opportunities. This includes CBRE Global Investors, Gaw, Grosvenor, Orion, Tishman Speyer and UBS; often via opportunity funds involving residential developments. These trends highlight the importance of development sites in China as providing the fabric for China's dynamic growth and future growth, as well as facilitating China's urban infrastructure. 6.1. Development sites in China Analysis of the RCA data allows quantification of the substantive scale of development activity in China, with 28,756 development sites transacted over the period of the study (2007e2014) totalling $1.6 trillion. Examples of significant development site transactions in China in 2013/2014 are shown in Table 5. These transactions are in various locations throughout China, with several listed in the top 25 global real estate transactions for these years. In terms of number of transactions, development sites in China account for 89.9% of all commercial property transactions in China, 79.9% of the development site transactions in the Asia-Pacific region and 67.5% of development site transactions globally. The impact by transaction value is even more significant, with development sites in China accounting for 93.1% of transaction value in China, 87.5% of development site transaction value in the AsiaPacific region and 79.9% of development site transaction value globally ($1,601B/$2,004B). Whilst initially focused on Beijing and Shanghai, the first and second largest development site markets respectively, transactions are across all major Tier 1,2,3 cities in China, supporting evidence presented in the literature that local authorities throughout China have been using the revenue generated from development site sales as a means of financing economic development and infrastructure schemes. The RCA data permits detailed analysis at and within cities, including (in transaction value order) Hangzhou as the third largest city for development site transactions, followed in sequence by Chongqing, Tianjin, Nanjing, Guangzhou, Dalian, Shenyang and Shenzhen. Major developers of these sites include state-controlled real estate companies (e.g.: Poly Real Estate Group, Greenland, China Overseas Land and Investment, China Resources) and private real estate companies (e.g.: China Vanke, Longfor Properties, Dalian Wanda, Evergrande Real Estate). Foreign capital is also evident and includes leading Singapore players (e.g.: CapitaLand, Yanlord, Guocoland) and US players (e.g.: Hines). Again, the involvement of significant external companies is consistent with the literature and the strategy of local authorities in China in using development sites as a means to lever in FDI and external capital market flows.

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Table 4 China profile: 2014. Social: Population: 1.4 billion Major cities: Shanghai (23.7M), Beijing (20.4M), Chongqing (13.3M), Guangzhou (12.5M), Tianjin (11.2M), Shenzhen (10.7M), Urban population: 55.6% Rate of urbanisation: 3.05% p.a. Economic: GDP: $19.4 trillion GDP growth: 6.9% real; #2 in Asia GDP sectors: Agriculture (9%), Industrial (43%), Services (48%) Labour force: Agriculture (34%), Industrial (30%), Services (36%) Inflation: 1.4% Unemployment: 4.2% Global competitiveness: #28 (out of 144 countries) Corruption perception: 83rd least corrupt (out of 167 countries) Stock exchanges: Shanghai (#4 globally), Shenzhen (#6 globally) Property markets: Real estate transparency: semi-transparent (Tier 1 - #33 globally; Tier 1.5 - #49; Tier 2 - #55; Tier 3 - #66) out of 109 markets City momentum: Beijing (#3 globally), Shenzhen (#4), Shanghai (#5), Wuhan (#8), Chongqing (#10) Size of investable real estate market: $1.9 trillion; #3 globally Most active commercial real estate markets (2014): Shanghai ($7.6B), Nanjing ($4.6B), Beijing ($4.4B), Guangzhou ($1.8B) Sources: CIA (2016), JLL (2015, 2016a,b), Pramerica REI (2012), RCA (2015), Transparency International (2015), World Economic Forum (2014), World Federation of Exchanges (2016).

6.2. International significance of development sites in China The top 20 global real estate transactions were identified for each of the years 2010e2014. Over this five-year period, 48% of these global real estate transactions were development sites, including development sites in China, Hong Kong, India, South Korea, Singapore, Taiwan and Malaysia. Of these 48 leading development sites, 69% were in China. Similarly, at an Asia-Pacific level, the top 20 real estate transactions were identified over 2010e2014, with 74% being development sites. Of these 74 leading development sites, 70% were in China, followed by Hong Kong, Singapore and India. This further reinforces the top-end scale of these major development sites in China at an Asia-Pacific level. Comparing the nature of the top real estate transactions in the Americas and EMEA with China demonstrates the significance of this phenomenon. While 74% of the top real estate transactions in the Asia-Pacific region were development sites, the equivalent level for the Americas was only 1% (development sites in US) and for

EMEA was only 3% (development sites in UK and Russia). This analysis further highlights the quantum of the regional differences regarding the role of development sites in the commercial real estate transaction space, specifically the significance of development sites in China at a global level. To further highlight the significance of development sites in China, Table 6 presents the leading country rankings of real estate capital flows under two scenarios: the first includes development site transactions, while the latter excludes development sites. At a global level (Table 6: Panel A), China is positioned second and at $1.7 trillion accounts for 27% of global capital flows. China is only marginally exceeded by the US (29% market share), and significantly ahead of the major real estate markets of the UK (in third position, 8% market share) and Germany (in fourth position, 5% market share). Direct comparison with the UK sees China having more than three times the real estate capital flows than the UK. However, when development sites are excluded, a totally different country ranking is apparent. Under this scenario, China accounts for $119B, only 3% of global real estate capital flows and its global ranking drops from second to eighth. In contrast, the US now has a 41% global market share, with China equivalent to only 7% of US real estate transactions or 24% of UK real estate transactions. This further reinforces the role of the development sites sector in China at a global real estate transaction level. Similarly, at an Asia-Pacific level (see Table 6: Panel B), the analysis including development sites places China as the first ranked market in the region with a 66% share, followed by Japan (2nd; 11% regional market share) and Australia (third; 6% regional market share), figures which illustrate that China has more than six times the real estate transaction volume of Japan and more than ten times the real estate transaction volume in Australia when development sites are included in the analysis. However, under scenario 2 of excluding development sites, China only accounts for $119B and 15% of Asia-Pacific real estate transaction values, dropping from first to third ranked, with Japan in first position with a 31% market share, followed by Australia in second position with a 19% market share. Both of these market share analyses clearly highlight the significance of development sites in terms of China's overall real estate market transactions at a global and Asia-Pacific level. 6.3. Development site implications As evidenced by the analysis of this RCA global real estate transaction data, development sites are a key component in the real

Table 5 Recent significant development site transactions in China. Property name 2014: 2014e137 2013e23 2013-262-2 Lubao Town 2014e050 2014e38 2014e6 2013: Xujiahui Centre 2013e7 Tiantuo Land 2013e21 2013e2 Wuliqiao 99 2013e13134 2013-57-59-1

Location

Price

Global transaction rank

Asia-Pacific transaction rank

Shanghai Shenzhen Shanghai Foshan Beijing Guangzhou Guangzhou

$4.1B $2.2B $1.7B $1.4B $1.2B $1.1B $1.0B

2 3 9 12 16 22 25

2 3 6 8 10 12 15

Shanghai Shenzhen Tianjin Wuhan Guangzhou Shanghai Zhuhai Hangzhou

$3.6B $1.8B $1.7B $1.5B $1.0B $1.0B $1.0B $0.9B

1 2 3 7 18 20 21 23

1 2 3 5 10 11 12 13

Source: Authors' compilation from RCA (2015).

G. Newell, S. McGreal / Habitat International 66 (2017) 117e124 Table 6 Impact of development sites on real estate capital flow rankings: 2007e2014. Country

Real estate capital flows including development sites

Real estate capital flows excluding development sites

$ Panel A: Global US $1,872B China $1,719B UK $510B Germany $333B Japan $279B France $193B Australia $159B Canada $133B Panel B: Asia-Pacific China $1,719B Japan $279B Australia $159B Hong Kong $138B Singapore $106B South Korea $73B Taiwan $51B

Regional %

Rank

$

Regional %

Rank

29% 27% 8% 5% 4% 3% 3% 2%

1 2 3 4 5 6 7 8

$1,788B $119B $489B $317B $243B $190B $144B $126B

41% 3% 11% 7% 6% 4% 3% 3%

1 8 2 3 4 5 6 7

66% 11% 6% 5% 4% 3% 2%

1 2 3 4 5 6 7

$119B $243B $144B $91B $60B $49B $25B

15% 31% 19% 12% 8% 6% 3%

3 1 2 4 5 6 7

Source: Authors' compilation from RCA (2015).

estate transaction space in China and, in turn, China's development site activities are a major contributor at a regional Asia-Pacific context and at a global level. While development site activity in China reduced significantly in 2014, it still stood at over $300B, which represents 82% of global development site activity and 88% of Asia-Pacific development site activity in 2014. Indeed, investment into development sites in China in 2014 ($306B) was only exceeded in total real estate transaction activity level by the US ($351B). China's development site activity also significantly exceeded total real estate transaction activity for the major developed markets of the UK ($91B), Germany ($59B), Japan ($52B), Australia ($36B) and France ($33B) in 2014. Coupled with the sheer magnitude of these development site transaction values and volumes in China are strong urbanisation drivers and the increasing need for infrastructure to provide the economic and social fabric for ongoing economic growth in China. Importantly, with a government requirement to commence development on the acquired site within two years, this should see further substantial flow-through from development sites to completed projects in the medium term, suggesting a positive context for the continuing role of development sites in the real estate landscape in China as the catalyst to enhancing the urban infrastructure in China. 7. Conclusions This paper through an examination of appropriate literature coupled with a detailed analysis of the rich RCA database on global real estate transactions has sought to emphasise the differing agendas in relation to property development and development sites from a western perspective with that of China. The paper, while not a comparative analysis per se, seeks to identify commonality of issues where apparent, but in particular to explore the China context and sheer magnitude of transactions related to development sites. The detailed analysis of the transaction value and volume of development sites, firstly from a global perspective and secondly from a China-specific focus, is highly significant and, in this context, the paper breaks new ground in dealing with a sector of the real estate market for which the level of transparency and research has been limited. The originality of the paper in addressing a neglected aspect of the real estate sector, development sites, not only makes

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an important contribution to the literature but raises the potential for greater consideration to be given to holding development land/ sites as part of property portfolios. This paper shows, through an analysis of over 216,000 major real estate transactions worth over $6.35 trillion, that development sites account for over $2.0 trillion or 31.6% of global real estate transaction activity over 2007e2014; being larger in money terms than either the office sector (28.8%) or retail sector (14.9%). The significance of this finding may provide the catalyst for investors to pay more consideration to the development product in constructing and balancing real estate portfolios; particularly in the higher risk opportunistic space. Conventionally, the property allocation in institutional portfolios has been within the traditional sectors of office, retail, industrial, hotel and perhaps residential property as standing investments. For this reason and its higher risk profile, development activity and the role of development sites has attracted relatively little interest in the institutional real estate investment sector. The detailed analysis in this paper shows that development site transactions in China were amongst the largest global real estate transactions in any year, and in the Asia-Pacific region development sites accounted for over $1.8 trillion, representing over 70% of AsiaPacific's total real estate transaction activity. The sheer magnitude of development site transaction activity in China, $1.6 trillion or 93% of the total real estate transaction value in China and 80% of development site transactions globally, highlights the significance of the development site transactions in China and the Asia-Pacific emerging markets to total real estate transaction activity over 2007e2014 at a global, regional and country-specific level. The importance of development sites in providing the economic and social fabric needed for increased urbanisation and economic growth in an emerging market has been clearly illustrated by China. With strong continued economic growth expected in China, these development sites and the subsequent completed development projects will continue to play a critical role in providing the essential economic infrastructure and fabric to facilitate this ongoing economic growth. This paper in quantifying the sheer scale of development site activity in China captures the market response to a policy, although subject to vagaries, which has deliberately utilised the sale of development sites as a proactive approach to speeding-up the pace of economic policy implementation. Possible extension of the China model to other emerging markets in the Asia-Pacific region (India, Indonesia, Vietnam, Philippines) and in other regions (Latin America, Africa), whereby development sites are used as an asset to lever suitable economic and social infrastructure and facilitate growth may provide major appeal as countries seek to reduce debt and be fiscally neutral in the economic and social development of these important emerging markets as they seek enhanced maturity. Acknowledgement The authors acknowledge the generous support of Real Capital Analytics in providing access to the RCA database and reports. References Adams, D., De Sousa, C., & Tiesdell, S. (2010). Brownfield development: A comparison of North American and British approaches. Urban Studies, 47, 75e104. Adams, D., Disberry, A., Hutchison, N., & Munjoma, T. (2001a). Ownership constraints to brownfield redevelopment. Environment and Planning A, 33, 453e478. Adams, D., Disberry, A., Hutchison, N., & Munjoma, T. (2001b). Urban redevelopment: Contextual influences and landowner behaviour. Journal of Property Research, 18, 217e234. Antwi, A., & Henneberry, J. (1995). Developers, non-linearity and asymmetry in the development cycle. Journal of Property Research, 3, 217e239.

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