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China’s Commercial Property Market Poised to Rebound, Report Says

By Pan Che

(Beijing) — Commercial real estate investment in China will hit 260 billion yuan ($38 billion) in 2020, an increase of 45% from 2016, mainly driven by urbanization and infrastructure development, according to a report based on a survey of 17 cities by a commercial real estate services company.

“Looking ahead to 2020, six fundamental drivers — infrastructure, urbanization, the Belt and Road initiative, the ‘Made in China 2025’ strategy, demographic shifts and the consumption upgrade — are expected to shape the commercial property investment strategy,” said Sam Xie, head of research, CBRE China, the Shanghai-based branch of U.S. commercial real estate services company.

Commercial real estate includes office buildings, shopping malls, industrial parks, hotels, resorts and long-term lease apartments.

First-tier cities such as Beijing and Shanghai, buoyed by an advantageous business and commercial environment, are forecast to attract 60% of the investment in commercial property, while six other key cities including the southern cities of Guangzhou and Shenzhen, the southwestern cities of Chengdu and Chongqing, northeastern Tianjin and central China’s Wuhan will account for 35%.

Although China’s commercial real estate market was valued at $3.4 trillion in 2016 — the second biggest in the world after the U.S. — it isn’t especially active. The transaction activeness ratio (TAR), a gauge of market activity, for China’s commercial property market in 2016 stood at 0.8, compared with 7.6 for Sweden, which topped the chart of 24 countries and regions worldwide. The Netherlands was second with 5.2, followed by the US with 4.8.

“The multiple restrictions in residential property will drive some investors and real estate companies into investing in commercial property as they chase stable cash flow. Against the backdrop of tightening controls on capital flight, some domestic investors will stockpile their commercial real estate assets in order to diversify their portfolio and preserve its value,” said Laura Zhu, manager at CBRE China Research.

CBRE China predicted a combined 1 trillion yuan will flow into this market between 2017 and 2020, with 250 billion yuan entering the market each year on average.

Looking ahead, private equity real estate funds and domestic insurers represent the main capital forces driving up the market, with their combined investment amounting to 712 billion yuan from 2017 to 2020, edging up from 56 billion in 2016 alone.

Foreign investors are also expected to increase their holdings over the four-year period, with offshore investment amounting to 130 billion yuan, compared with a 34 billion yuan investment in 2016 alone.

“In the short term, the slowing growth of the Chinese economy will have a limited impact on the demand for commercial real estate, but in the long run, momentum will not be affected,” Zhu added.

Contact reporter Pan Che (chepan@caixin.com)

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