Despite an overall real estate slump in China, the commercial property sector is experiencing pockets of demand, particularly in prime retail locations in the capital city of Beijing. According to a report by property consultancy JLL, rents for prime retail spaces have seen a significant increase, rising by 1.3% in the first quarter of this year compared to the previous quarter in 2023. The report attributes this rise in rents to the growing interest from new food and beverage brands, niche foreign fashion offerings, and electric car companies in shopping mall storefronts.
While commercial real estate, which includes office buildings and shopping malls, accounts for only a fraction of China’s overall property market, there has been a noticeable increase in sales of offices and commercial-use properties. According to data from Wind Information, sales of offices and commercial properties rose by 15% and 17% by floor area, respectively, in January and February compared to the previous year. This is in stark contrast to the nearly 25% drop in sales of residential properties during the same period.
As commercial real estate prices in China approach attractive levels, investors like Joe Kwan, the managing partner at Raffles Family Office in Singapore, see potential buying opportunities on the horizon. Kwan expressed optimism about the market, noting that his firm has set a timeline for when valuations reach a favorable point for investment. He anticipates starting to make deals in the second half of this year and into the next year, focusing primarily on commercial properties in Shanghai and Beijing.
Despite the current challenges in the commercial property market, investors like Kwan remain optimistic about the long-term prospects of China’s economy. He emphasized the country’s large population, favorable demographics, and robust consumption numbers as factors that make it an attractive investment destination in the future. While the market may be going through a correction phase, Kwan believes that well-located, high-quality assets will prove to be winners in the mid to long term.
Companies like Hong Kong-based Swire Properties are looking to capitalize on the potential of China’s commercial property sector. Swire Properties announced its intention to double its gross floor area in mainland China by 2032, indicating a strong vote of confidence in the market. The company, known for its high-end shopping complexes branded “Taikoo Li” in Beijing, Shanghai, and other major Chinese cities, has seen significant improvements in foot traffic and retail sales post-pandemic. As the company looks ahead, it anticipates 2024 to be a “year of stabilization” in retail demand, further underscoring the resilience of China’s commercial property sector.
While China’s overall real estate market may be facing challenges, the commercial property sector is showing signs of resilience and growth, driven by increased demand in prime retail locations and rising sales in office and commercial properties. Investors like Joe Kwan see this as an opportune time to explore investment opportunities in the market, anticipating long-term growth potential despite short-term uncertainties. With companies like Swire Properties expanding their presence in mainland China, the future looks promising for the commercial property sector in the country.
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