Germany emerges as China’s gateway to Europe
German real estate market is well positioned to attract increasing levels of Chinese corporate and investor activity.
For growing numbers of China's ambitious technology and finance companies, Germany's long tradition of high-value manufacturing and engineering innovation is proving to be a strong draw.
Through a series of strategic investments and takeover deals, Chinese firms have embedded themselves in Germany's high-tech and manufacturing industries. Meanwhile, China's biggest tech firms and telecoms companies have established a physical foothold in German cities to gain closer access to technology talent.
"Germany is what China aspires to in terms of advanced manufacturing and R&D, and buying into major German brands in cities such as Dusseldorf, Frankfurt and Berlin will help Chinese firms to reach the next phase of their evolution," says Will McBryde, Analyst, Global Cities Research at JLL.
In February 2017, Chinese car company, Geely, hit headlines when it acquired a 9 percent stake in Daimler, the parent company of German automotive giant, Mercedes Benz.
Last year, Midea, a Chinese appliance manufacturer, took over Kuka, a German robotics company. And Chinese investment group, HNA, ploughed $3.5 million into Deutsche Bank. These deals are the tip of the iceberg; to date, total Chinese acquisitions in Germany have reached $27 billion.
"In Germany, the nature of Chinese interest is different from what we have seen in London or New York where there's been major real estate investment," says Jeremy Kelly, Director in JLL's Global Research team. "Germany is a European gateway market for many Chinese corporates thanks to the country's engineering and advanced manufacturing expertise and skilled workers and, going forward, Germany will be a key partner for many Belt & Road projects."
Germany's unique appeal
Unlike the UK or France, where businesses head to London and Paris, Germany's Federal make-up means each city has a unique appeal and a unique relationship with China.
Dusseldorf, for example, is a frontrunner in terms of Chinese corporate presence, according to JLL's China12 report. Since 2010, at least 35,000 square meters have been let to Chinese firms.
Historically, the city has been popular with Japanese companies, but its highly skilled talent has recently attracted Chinese technology giants such as Huawei and ZTE. This corner of Germany is also an important logistical base with close links to the Belgian and Dutch seaports and a direct rail connection to China.
Meanwhile, Frankfurt, Germany's finance hub, is now home to some of China's biggest banks, including China's Bank of Communications, the People's Bank of China, and Agricultural Bank of China. It was Europe's first Renminbi clearing center and more than 20 Chinese companies turned to the German stock exchange for an initial public offer.
Frankfurt is also home to technology companies with an eye on the Fintech market including Inspur, China's largest server maker and cloud computing operator, and e-commerce giant Alibaba.
The city's appeal is strengthened by its airport, one of Europe's busiest, with more direct flights to China than from any other city in central Europe.
Further south, Germany's manufacturing and automotive base, Munich, has attracted Chinese automakers such as electric autonomous vehicle start-up, NIO, and Alibaba, which this year confirmed it has been conducting self-driving vehicle tests.
"A lot of these German automotive companies, like BMW, have a big market in China so for these Chinese firms to be based in the heart of Germany's auto industry means ideas can flow between the two nations," says McBryde.
Finally, Hamburg has historic ties with China as its leading European seaport – almost one in three containers handled in the Port comes from China — and the Port authority further strengthened this relationship when it awarded a Chinese conglomerate the contract develop a new container terminal.
A one-way street?
The Hamburg deal in particular, raised questions over the nature of China's interest in Germany – and its influence on German corporates.
McBryde says: "Companies from outside of China face a number of obstacles when it comes to operating in the country, and there's been a lot of debate in the EU, led by Germany, about how to manage China's growing interest in Germany."
Majority foreign ownership in a Chinese firm may be a long way off but evidence of a more reciprocal relationship is beginning to show.
Siemens recently announced a dedicated Belt and Road office in Beijing, which will allow the countries to 'jointly explore business opportunities emerging from the Belt and Road Initiative'.
Meanwhile, China recently said it will make it easier for automotive and aerospace companies to operate in the country without the current requirement for a local partner. And President Xi Jinping has pledged to open up China's financial market to facilitate foreign investment into the Middle Kingdom.
Kelly says it's increasingly becoming a symbiotic relationship. "Any linkages perceived to be one way are not," he adds. "The relationship will strengthen between the two nations as Germany seeks ways to access the huge Chinese market going forward, and Chinese businesses look to learn from German firms."
In longer term, German logistics and residential real estate sectors look set to benefit from growing Chinese-German relations.
In 2016, CIC, China's Sovereign Wealth Fund, made a large investment into German property group BGP, which develops apartments mainly around Berlin – the major Chinese investment into German residential real estate.
"The direct real estate impact of China's presence in Germany may be limited at the moment but there's long-term potential," adds Kelly. "As Corporate China continues to build its presence in Europe, German real estate market is well positioned to attract increasing levels of Chinese corporate and investor activity."
This article is from www.jllrealviews.com
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