Commercial real estate is the bright spot of China’s real estate, in contrast to the gloom and gloom of the residential housing market.
Offices, warehouses and business parks are proving resilient and continue to deliver steady rental revenue – albeit discounted by lower demand, property analysts and developers say .
Hong Kong-listed real estate group KWG Group Holdings recently said that income from office rents and other commercial real estate grew 6% in the first half of the year, although sales and development revenue in China fell by nearly 37% year-on-year. before.
Similarly, asset group CIFI Holdings announced home sales in China fell 23% year-on-year in the first half of the year, but reported a 69.5% increase in real estate investment revenue.
In July, Hong Kong’s Attributes of Hang Lung reported a small increase in profit for the first half of the year, which Vice President Adriel Chan called a “pleasant surprise.” While the company reported lower revenue from malls and hotels due to pandemic closures, premium office rents increased 16%.
“Office has done surprisingly well for us. It now accounts for about 20% of our Mainland China revenue. And it’s been very efficient. I know that not all Developers all have the same experience, and so we’ll continue to review “Chan told CNBC “Squawk Box Asia” at the end of July.
Hang Lung, which mainly invests in commercial real estate in mainland China, has seen occupancy rates at its office towers in Wuxi, Kunming and Wuhan continue to rise. , while levels in Shenyang and Shanghai rose amid lackluster new hire prospects.
Chinese commercial real estate investors and their tenants are not facing the same difficulties as their residential counterparts, which are already grappling with slower sales as well as recession and debt pressures. , real estate advisor Lauressa Advisory partner Nicholas Spiro said.
The commercial sector has not been immune to the confidence crisis that has swept through the housing market. While some investors sell assets to maintain liquidity, Spiro said the commercial sector generally has more supportive government and fiscal policies.
“While Beijing is looking for ways to reduce the bubble in the residential market without hurting the economy, it is prioritizing investment in infrastructure and the new economy, which is what makes it a priority,” Spiro said. particularly beneficial for the industrial and logistics real estate sectors.”
He also sees room for growth in China’s commercial sector, with “huge scope for further development in secondary cities.”
“And the conservative mindset of Chinese companies – which has made pandemic-induced changes to working patterns more difficult than in the US and UK – will benefit the sector,” he said. this in the long term,” he said.
In addition to broader supportive policies, the Chinese government also has more direct plans to help homeowners, such as reducing urban land use taxes and providing subsidies for homeowners to cover the waived rentals.
For tenants, despite the challenge of China’s lockdown and Covid-zero policy, global real estate investor Hines sees increased demand for retail and office space as businesses Businesses see an opportunity in a down market leading to more office space opening or leasing.
“We are seeing retailers using the current market reset for testing,” said Claire Cormier Thielke, country head of China at Hines, a property investment firm in mainland China. new brand concepts and experiences.
“For the office, we see tenants looking to upgrade to spaces and locations that better suit their needs and work more modern, collaborative.”
Overall, the resilience of China’s commercial real estate sector lies in its ability to recover faster than its residential counterpart.
According to the latest update of real estate consulting company CBRE in China, Between the first and second quarters of this year – during the worst China shutdown in Shanghai – new office supply and rentals fell by 56% and 75% respectively.
Investment data in fixed assets for the first 5 months of 2022 shows that investment in real estate has decreased on a larger scale compared to the first 4 months of the year. Pictured here on May 16 is a development in the city of Huai’an in eastern China’s Jiangsu province.
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Rents fell across 18 markets tracked by CBRE. The company’s national rental index fell 0.5% quarter-on-quarter.
Retail leasing was also hit hard, with rents in the second quarter down 44% QoQ and 87% YoY.
Logistics performance was better with rents rising in the second quarter, but down year-on-year.
But unlike housing, the commercial sector is recovering especially after shutdowns and government incentives were introduced, CBRE said. CBRE also predicts that the commercial sector, excluding retail, will perform well for the rest of the year.
The recovery will come from demand for space from tenants in the finance, technology, media and telecommunications and life sciences sectors, said Cushman & Wakefield real estate advisor, head of research Tenant research in China said Shaun Brodie.
“In 2022, the central and local governments in China have effectively taken aggressive measures to deal with the epidemic and promote stable economic growth,” Brodie said.
Investment research firm MSCI said last month commercial real estate sales and transaction flows in China had also slowed.
Again, unlike the housing market, the transaction recovery has been stronger in the commercial property market as there are many players unaffected by financial constraints still looking to buy and sell. property sales, said Benjamin Chow, head of Asia real estate research at MSCI.
He said: “Domestic institutions are a prime example – they are the largest group of buyers this year. In this group, insurance companies, banks and financial groups are the buyers of real estate. largest commercial property ever”.
“Another group of buyers includes companies, which made a big splash last year and are still relatively active in 2022.”