China’s commercial property sector is showing signs of demand amidst an overall slump in the real estate market. In Beijing, rents for prime retail locations have increased at their fastest pace since 2019, with a 1.3% increase in the first three months of 2023. This rise in rents is driven by demand from new food and beverage brands, niche foreign fashion offerings, and electric car companies for storefront space in shopping malls. Despite the increase in rents, they remain below pre-pandemic levels. Commercial real estate makes up a small portion of China’s overall property market, with sales of office and commercial properties rising in January and February while residential property sales decreased during the same period.
China’s commercial real estate prices are nearing an attractive buying point, according to Joe Kwan, managing partner at Raffles Family Office. Kwan expects the firm to start making deals in the second half of this year through next year, primarily focusing on commercial properties in Shanghai and Beijing. While this presents an opportunity for bargain-hunting, it does not necessarily indicate a full market recovery. Owners have been offering discounted opportunities, suggesting that there may be further price corrections before the market bottoms out. Despite short-term challenges, Kwan maintains a positive outlook on the longer-term prospects of China’s commercial real estate market, citing the country’s population size, demographics, and consumption numbers as key drivers of future growth.
Hong Kong-based Swire Properties has announced its plans to double its gross floor area in mainland China by 2032, highlighting the company’s confidence in the market’s potential. Swire currently operates high-end shopping complexes under the brand “Taikoo Li” in major cities like Beijing and Shanghai. The company’s chief executive, Tim Blackburn, noted that foot traffic and retail sales in their Chinese malls have exceeded pre-pandemic levels since the lifting of pandemic-related restrictions. In addition, Swire’s office portfolio has proven to be resilient despite challenges in the office market. Looking ahead, Swire expects 2024 to be a “year of stabilization” in retail demand, signaling optimism for the future of China’s commercial real estate sector.
The COVID-19 pandemic and associated restrictions on movement had initially dampened demand for commercial properties in China, in line with global trends. While China’s economy is on the path to recovery, it took longer than expected to bounce back from the pandemic, contributing to a broader slump in the property market. However, the demand for commercial properties, driven by new brands and industries, is expected to persist throughout the year, potentially boosting rents in the prime retail locations. The overall outlook for China’s commercial real estate market remains positive in the long term, despite short-term challenges and uncertainties.
Joe Kwan emphasized the importance of timing in considering potential investments in China’s commercial real estate market. He noted that internal projections indicate that valuations are nearing an attractive buying point, signaling an upcoming opportunity for investors. Kwan highlighted the cyclical nature of the market, as owners have been offering discounted opportunities on a quarterly basis. While uncertainties remain in the short term, Kwan remains optimistic about the medium to long-term prospects of the market, citing China’s demographic and consumption trends as key factors driving future growth.
