China’s commercial property sector has been experiencing a surprising surge in demand despite an overall slump in the real estate market. Beijing, the capital city, has witnessed an increase in rents for prime retail locations at the fastest pace since 2019. According to a report by property consultancy JLL, rents surged by 1.3% during the first quarter of this year as compared to the fourth quarter of 2023. The rise in rents can be attributed to the growing interest from new food and beverage brands, niche foreign fashion offerings, and electric car companies in securing storefronts within shopping malls.
JLL expects this demand to persist throughout the year, further boosting rents that are still below pre-pandemic levels. Commercial real estate, including office buildings and shopping malls, only represents a fraction of China’s overall property market. However, sales of offices and commercial-use properties have seen a 15% and 17% increase in floor area, respectively, during January and February compared to the previous year. In contrast, the floor space of residential properties sold dropped by nearly 25% during the same period. Last year, both commercial and residential property sales had declined, influenced by Covid-19 movement restrictions and the sluggish property market recovery in China.
Despite the challenges faced by the commercial property sector, there are indications that prices are approaching an attractive buying point. Joe Kwan, the managing partner at Raffles Family Office in Singapore, believes that the market is ripe for investment opportunities. Kwan mentioned in an interview that the firm plans to start making deals in the second half of this year, focusing on commercial properties in Shanghai and Beijing. This investment strategy is not a signal of a full market recovery but rather a strategic move to capitalize on discounted prices and high-quality assets.
Kwan remains optimistic about the long-term prospects of China’s commercial property market due to its population size, demographics, and consumption patterns. He stressed the importance of seizing the current opportunity to acquire well-located assets that have the potential to be profitable in the mid to long term. Hong Kong-based Swire Properties shared a similar sentiment in their report, stating their intention to double their gross floor area in mainland China by 2032. The company’s upscale shopping complexes have experienced improved foot traffic and retail sales exceeding pre-pandemic levels, signaling a positive outlook for retail demand in the coming year.
Despite the challenges posed by the real estate slump in China, the commercial property sector is showing resilience and pockets of growth. By capitalizing on the current market conditions, investors like Joe Kwan and companies such as Swire Properties are positioning themselves for long-term success in China’s dynamic property market.