Anne Breen, head of Real Estate Research and Strategy at Standard Life Investments argues that rising affluence, favorable policies and currency arbitrage are driving the growth of Chinese outbound tourism, benefiting the retail markets of key global cities.
One of the key drivers of real estate markets in several countries is the rise of the Chinese consumer. Wealth in China grew by over 200% between 2000 and 2008, while China’s share of the global middle class population has doubled since 2000 and is currently about one-third of the total. With this new-found wealth, luxury brands flocked to China.
More recently, as Chinese consumers became more sophisticated, world travel became more alluring. While Chinese now represent close to a third of all luxury sales around the world, about two-thirds of their spending is overseas.
Key drivers that facilitated the expansion in Chinese outbound travel were policy changes and currency movements. For example, there has been a steady easing of visa restrictions by the Chinese government for outbound travel, in tandem with countries such as Japan, the EU and the US easing restrictions on inbound travel.
Weaker currencies in Japan and the Eurozone versus a stronger renminbi have also underpinned the growth in Chinese tourism.
By far the top destination for Chinese tourists is Hong Kong; while South Korea, Thailand and Taiwan have seen their share of Chinese arrivals rise and Japan is becoming a preferred destination.
Together with the US, France, Singapore, Malaysia, Germany and Australia these countries complete the most popular destinations for Chinese tourists. The growth in outbound tourism from China to these destinations was over 12% in the 18 months to June 2015. Globally, of all outbound tourism, China is the world’s top spender with a 28% increase in expenditure in 2014, reaching a total of $165 billion.
The implications for global real estate
The retail offering in China is improving but lacks critical mass and e-commerce is often hampered by a lack of infrastructure. International retailer expansion in China has reached a point of saturation.