China’s reopening and the abandonment of stringent domestic Covid restrictions prompts thoughts on prospects for the property market in China: after the difficulties of 2022, spring is definitely in the air.

First let’s take a look at the global backdrop. MSCI data shows that global acquisitions of investment property plunged in the final quarter of 2022 when compared with the same period 12 months ago. The fourth quarter of the year, usually the busiest, was the slowest – deal volume dropped 64% to US$206.9b. The result of market stress is lower liquidity and the number of buyers and sellers active in the fourth quarter fell to the lowest level since the middle of the pandemic. So far, so gloomy.

Unsurprisingly, global headwinds have spared few markets with the result that dealmaking fell across the board and regionally Asia Pacific’s slowdown mirrored that of the Americas and EMEA. It is interesting to note that China was the region’s largest market for investment properties, despite various lockdowns attributed to its ‘Zero Covid’ policy. But even there, deal volumes fell by 50% YOY.

Shanghai was resilient in 2022 on the back of several large office deals including AIA Group’s purchase of SIIC Center for more than US$1b which made the city the biggest APAC office market edging out Tokyo.

A word on capital flows. Cross border acquisitions of commercial real estate declined by 29% in 2022, falling to US$230b from US$324b in 2021. Putting this into perspective, the 2022 level is on a par with the 2020 total and well below the 10-year average. This highlights how the uncertainty created by high inflation and rising interest rates has dampened international capital flows. The largest destinations for cross-border capital remain the major investable cities in Europe, US and the UK. Institutional investors, if minded to look at markets at all, will likely think ‘safety first’ which might mean that developing markets will take a back seat for a while.