Major real estate acquisition deals exceeded 25 billion yuan (US$3.66 billion) in Shanghai last year with office buildings taking nearly four-fifths of total transactions, a leading property services provider said yesterday.

A total of 22 en bloc property deals, valued at a combined 25.6 billion yuan, were concluded in the city in 2009, a year-on-year increase of 42 percent, according to the latest research by Jones Lang LaSalle.

"The city's real estate investment market was dominated by domestic buyers, owner occupiers and the office sector in 2009," said Kurt Jia, national director of investment at Jones Lang LaSalle.

"Notably, domestic buyers represented 88 percent of the transacted value last year, and many of them purchased offices for their own use."

Investors from outside China were notable by their absence from the Shanghai investment market in 2009, completing only one deal - a joint venture between Goodman and the Canada Pension Plan Board which involved the purchase of several industrial assets in Shanghai, the company said.

Meanwhile, purchases by owner occupiers, rare in previous years, accounted for half the city's total investment value in 2009, and office building transactions took a joint share of 79 percent, far exceeding any other real estate sectors such as residential and retail.

For 2010, Jones Lang LaSalle expected the first half to remain active as a total of 6 to 7 billion yuan in deals, covering almost all sectors, are currently in progress and targeted for completion by the end of June.

It also said the proportion of deals done by investors from both home and abroad, rather than owner occupiers, would probably be on the increase this year.

The city's property investment market began to recover in March when Shanghai Lujiazui (Group) Co bought POS Plaza in Pudong for nearly 1.76 billion yuan.

"Investors from outside China were notable by their absence from the Shanghai investment market in 2009"

Yeah, most international real estate funds realize buying commerical at sub 4% cap rates when there are 30 cranes in the sky might not be a logical investment thesis.

It is true indeed in respect of property market in Shanghai. With residential property prices having been puffed up in the last a few years, a lot of investors have turned their eyes onto commercial properties, which is comparatively not having much bubble.

This is reflected in the last a few weeks with several inquries asking for advice on acquiring office properties for their own use while there are few inquiries for residential properties.

Foreign investors are still restricted to hold properties in Shanghai (the extent of restriction varies from city to city). However, purchase of properties for purpose of self-using is still doable.

"This is reflected in the last a few weeks with several inquries asking for advice on acquiring office properties for their own use while there are few inquiries for residential properties."

And here in lies the problem with real estate in China - just because people are enquiring about commercial assets, it doesn't mean the assets are priced in a range which represents fair value. In terms of residential, it is even worse - my landlord makes 115 basis points a year in yield on my unit, and that is pre-tax, and before any allocation for cap ex... don't even get me started on how much depreciation should be charged. I have yet to see a DCF on Chinese real estate which makes sense.

Doroto, I would run a correlation between the number of investor phone calls you recieve for real estate enquiries, and returns on Chinese equities... it would be pretty close to -1.