China's commercial property sector is experiencing a mix of demand amidst an overall downturn in the real estate market. In Beijing, prime retail rents are on the rise, marking the fastest increase since 2019, as reported by property consultancy JLL. The first quarter of this year saw a 1.3% jump in rents compared to the previous quarter of 2023. The surge is attributed to the demand from new food and beverage brands, niche foreign fashion offerings, and electric car companies, which have all expressed interest in shopping mall storefronts. JLL predicts that this demand will continue throughout the year, contributing to the rise in rents that are still below pre-pandemic levels.
Although commercial real estate, including office buildings and shopping malls, represents just a fraction of China's property market, it has shown resilience compared to the residential sector. Sales of offices and commercial properties escalated by 15% and 17%, respectively, in January and February from a year earlier, according to Wind Information. In contrast, residential property sales plummeted by nearly 25% during the same period. The sales decline in both sectors was a prevalent trend last year, mostly due to Covid-19 restrictions that impacted movement and demand for commercial properties across the globe.
Amid the current market conditions, there are investors like Joe Kwan, the managing partner at Raffles Family Office, who see potential in China's commercial real estate prices almost hitting an attractive buying point. Kwan pointed out that the firm is eyeing commercial properties in key cities like Shanghai and Beijing for potential deals starting in the second half of this year through the next. This approach of bargain-hunting does not indicate an imminent market recovery, as owners are still offering properties at discounted prices, hinting that the market may take some time before it bottoms out.
Kwan remains optimistic about China's long-term prospects, highlighting factors such as its population size, demographics, and consumption patterns. However, he acknowledges that the current correction phase in the market might deter some investors from capitalizing on the opportunity to acquire well-located, high-quality assets that could yield significant returns in the mid-term.
Swire Properties, a Hong Kong-based company, recently announced its intention to double its gross floor area in mainland China by 2032. The company operates upscale shopping complexes under the brand “Taikoo Li” in Beijing, Shanghai, and other major Chinese cities. Despite the challenges posed by the pandemic, Swire Properties has seen a notable improvement in foot traffic and retail sales across its malls in mainland China. Looking forward, the company anticipates 2024 to be a “year of stabilization” in terms of retail demand, signaling a positive outlook for the future of the commercial real estate sector in China.
China's commercial property sector is navigating through fluctuations and challenges, with opportunities for investors who are willing to navigate the market uncertainties. By staying abreast of market trends, understanding the evolving demands of tenants, and strategically seizing investment opportunities, stakeholders can capitalize on the potential growth and stability that lie ahead in China's commercial real estate landscape.