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China’s residential market is struggling, commercial may be bright spot

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Commercial real estate is showing positive signs in China’s property market, in contrast to the pessimistic situation in the housing market.

Property analysts and developers say offices, warehouses and business parks are proving resilient, continuing to provide steady rental income, although they have been discounted due to slowing demand. .

Hong Kong listed real estate group KWG Group Holdings It recently said that rental income from offices and other commercial properties rose 6% in the first half of the year, despite a nearly 37% year-on-year decline in income from residential development and sales in China.

Similarly, the property group CIFI Holdings reported a 69.5% increase in property investment income in the first half of the year, despite a 23% year-on-year decline in home sales in China.

Hong Kong in July hang lung properties reported a slight rise in first-half profit, which Vice Chairman Adriel Chan called a “pleasant surprise”. The company reported lower revenue from malls and hotels due to pandemic lockdowns, but rents at its main offices rose 16%.

“Office is doing amazingly well for us. It now accounts for about 20% of our revenue in mainland China. It’s also very resilient. I know the office,” Chan said on CNBC’s “Squawk Box Asia” in late July.

Hang Lung, which primarily invests in mainland China commercial real estate, sees occupancy rates continue to rise at office towers in Wuxi, Kunming and Wuhan, while levels in Shenyang and Shanghai are bleak for new leasing prospects. holding up inside.

Advantages for the commercial sector

China’s commercial real estate investors and their tenants are not facing the same challenges as residential investors, who are struggling with slowing sales, economic recession and debt pressure, said Nicholas Spiro, Advisory Partner at Lawlessa Real Estate Advisory. says Mr.

The commercial sector has not escaped the crisis of confidence that has swept the housing market. Some investors have sold assets to maintain liquidity, but Spiro said the commercial sector generally has more supportive government and fiscal policies.

As Beijing seeks to deflate its housing market bubble without collapsing its economy, it is prioritizing investments in infrastructure and the new economy, particularly benefiting the industrial and logistics real estate sectors.

Nicholas Spiro

Partner, Lauressa Advisory

“The Chinese government is trying to deflate the housing market bubble without collapsing the economy, but it is prioritizing investments in infrastructure and the new economy, especially benefiting the industrial and logistics real estate sectors.” Spiro said.

He also sees room for growth in China’s commercial sector, with “great potential for further development in secondary cities.”

“And while the conservative mindset of Chinese companies makes the changes in work patterns caused by the pandemic more problematic than in the US or the UK, it bodes well for the sector in the long run,” he said.

Aside from broader supportive policies, Chinese authorities have taken more direct measures to help landlords, such as lowering urban land use taxes and providing subsidies to landlords to cover exempted rent. I have a plan too.

As for occupancy, despite the challenges of lockdowns and China’s Covid-zero policy, global real estate investor Hines sees an opportunity in a sluggish market that has led companies to open more office and lease space. Demand for retail and office space is increasing as a result of

Analysts say China's real estate will become a low-margin sector in 5-10 years

Fixed asset investment data for the first five months of 2022 show that property investment has declined significantly from the first four months of the year. The photo, taken on May 16, was developed in the city of Huai’an in eastern China’s Jiangsu province.

CFOTO | Future Publishing | Getty Images

Rents fell in the 18 markets tracked by CBRE. The company’s national rental index fell 0.5% quarter-on-quarter.

Retail leasing was also hit hard, with Q2 rents plummeting 44% from the previous quarter and 87% from the same period last year.

Logistics performed well on higher rents in the second quarter, but was down from last year.

down but not out

But unlike residential, the commercial sector is recovering, especially after the lockdown ended and government incentives were introduced, CBRE said. CBRE also expects the commercial sector, excluding retail, to continue to perform well for the rest of the year.

The recovery will be driven by space demand from tenants in the financial, technology, media, telecom and life sciences sectors, said Sean Brody, head of Greater China occupant research at real estate advisory Cushman & Wakefield. says Mr.

“Towards 2022, China’s central and local governments have taken proactive measures to combat the epidemic and effectively promote stable economic growth.

Investment research firm MSCI said last month that commercial property sales and transaction flows in China were also slowing.

Logistics market 'very strong' across Asia: Colliers

Again, unlike the residential market, the recovery in deals is stronger in the commercial real estate market, as many players unaffected by funding restrictions are still looking to buy or sell assets.

“Domestic institutions are a good example. They were the largest group of buyers this year. Within this group, insurance companies, banks and financial groups have been the largest buyers of commercial real estate to date,” he said. said.

“Another group of buyers is made up of companies that made headlines last year and will remain relatively active in 2022.”

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