China’s Commercial Property Market To Rebound By Mid-2023

CHINA – Real estate consultants expect demand for commercial property in China would recover by the middle of next year due to the anticipated reopening of the country and the resulting economic revival, reported the South China Morning Post (SCMP) on Tuesday evening (27 December, SGT).

But while the appetite for commercial real estate in tier-one cities such as Shanghai and Beijing should rebound, interest in assets located in lower-tier cities may continue to fall.

In particular, property consultants said high-end office space proved largely resilient to the impact of pandemic, as investors tend to prefer upscale assets during times of economic uncertainty. Comparatively, lower grade office spaces have suffered a larger impact from the coronavirus outbreak.

Data from Colliers showed that in Beijing, Grade A office vacancy edged up by 1 percentage point year-on-year to 16 percent in 2022, while rents of such commercial properties dipped 1.7 percent to 331.1 yuan per sq m per month.

In comparison, Grade B office vacancy in the capital increased by 3.7 percentage points to 15.6 percent this year, while the average rent of such premises fell 5.6 percent on an annual basis.

“It takes time to restore market confidence and for companies to adjust their leasing strategy,” Colliers’ Managing Director Charles Yan stated in a webinar on Monday. He foresees “economic vitality to be restored” beginning from Q2 2023.

However, Yan thinks office vacancy in Beijing would rise further to 20 percent as more office projects are completed, with more than 640,000 sq m (6.89 million sq ft) of workspaces to enter the market in 2023 as delayed developments are finally finished.

Meanwhile, Colliers’s Deputy Director of capital markets & investment services for North China Winter Yan disclosed that foreign investment in China’s commercial real estate market had fallen since the onset of COVID-19.

In fact, of the 9 commercial property transactions in Beijing during Q4 2022, only 2 involved overseas entities. In October, Singapore’s CapitaLand purchased Borui Plaza in downtown Beijing at a 30 percent discount for 2 billion yuan, while American multinational insurance firm AIA Life bought a 90 percent interest in Shanghai Shisen Real Estate for 5 billion yuan.

“We hope that with the easing of COVID-19 measures, foreign investors will return to the Beijing market,” Yan opined.

The 2 aforementioned deals demonstrate that overseas investors prefer commercial assets located in tier-one cities, said Cushman & Wakefield’s (C&W) Managing Director of capital markets in China Gordon Liu.

According to a recently published C&W research, demand for office properties in Shanghai and Beijing was especially robust. This is after economic uncertainty and the stricter financing rules in the property market over the past few years have made investors risk-averse. As such, they are likely to invest in more stable markets in the form of tier-one cities.

In fact, the study showed that more than 50 percent of respondents would consider investing in Grade A office buildings in Shanghai, while over 80 percent favour Grade A office space in Beijing. On the other hand, merely 8 percent showed interest in office towers situated in major tier-two cities.