The Rebound of the Chinese Commercial Real Estate Industry: Ken Research


Introduction: Although China’s commercial real estate market was valued a USD 3.4 trillion in 2016, the second biggest in the world after the US, it hasn’t been especially active recently. The transaction activeness ratio (TAR) which is 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 showcasing an almost stagnant level of activity in the real estate market for China, although the market is now poised to make a turnaround owing to the massive investment opportunity surrounding its commercial and industrial real estate. The commercial real estate market in China is forecasted to have an investment worth USD 150 Billion in the year 2020. This comes in conjunction with the rebound of the Chinese real estate market expected to grow exponentially over the next 3-5 years. Real Estate Industry Research and Market Reports estimates predict that there will be a 45% surge in en bloc transactions adding revenue of USD 41.06 Billion (RMB 260 Billion). Further there is also an expected additional influx of USD 160 Billion (RMB 1 Trillion) expected to be invested into the real estate market between 2017 and 2020. The major drivers behind this increment in investment are increased participation from commercial developers and institutional investors betting big on the growth of the Chinese real estate market. The major trends that are bound to shape the market are increasing participation of capital market activity with mergers and acquisitions playing a major factor in molding the competitive landscape of the market. Adding to this, overall cap rates on investment are expected to be stable supported by positive investor sentiment and currently, sufficient capital availability. Demand for commercial space is driven by a high level of participation from foreign participants entering the Chinese market and through a need for commercial space required by emerging domestic corporations. Leasing fundamentals are expected to stay positive following a strict level of regulation on labor supply. Although commercial demand is driven by the requirement for commercial space for companies, the extent of product demand for consumers is the key driving factor behind the growth and sustainability is the buoyancy and solid consistency behind consumer demand.

Outlook:  In 2007, Chinese commercial real estate outflow stood at less than USD 1 billion. A decade later, outbound investment in the commercial property space exceeds USD 20 billion annually. Rising capital outflows caused a rapid depreciation of the RMB, and hampered government efforts to internationalize the currency, leading to controls brought in late 2016 to curb investment outflow. Some of the measures implemented to restrict capital outflows include the prohibition of outbound investments amounting to more than USD 10 billion, the banning of overseas real estate deals worth USD 1 billion by state-owned companies, and the restriction of mergers and acquisitions outside a domestic investor’s core business valued at more than USD 1 billion. Despite the capital controls and the reported drop in overall outbound capital investment, there has been limited impact in the commercial property space in part due to Chinese investors’ desire to diversify and manage risk amid the slowing domestic economic growth. A large demand for industrial real estate is driven through the logistics industry owing to an increasing need for warehousing space in the fast emerging logistics and warehousing sector driven majorly by the explosive growth of the ecommerce sector in China. 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.

Region Wise Breakdown: First-tier cities such as Beijing and Shanghai, with a prominent 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%

Conclusion: The growth in the commercial sector of China combined with a consistently increasing industrial capacity is leading to China becoming one of the major markets for commercial real estate. Increased investment by institutional investors coupled with growing participation by property developers like Sun Hung Kai, Wheelock, Great Eagle, Henderson Developers and more are leading to a highly positive outlook for the commercial real estate market in China.

Key Factors Considered in the Report:

Real Estate Market Research Reports

Real Estate Industry Analysis

Market Research Reports for Real Estate

Real Estate Industry Research Report

Real Estate Market Research Reports Consulting

Real Estate Business Review

Real Estate Industry Research and Market Reports

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Ankur Gupta, Head Marketing & Communications