China's Commercial Real Estate Sees Demand in Retail Sector Amid Overall Slump

In recent reports, it has been highlighted that China's commercial property sector is experiencing a resurgence, despite an overall slump in the real estate market. Specific regions and sectors within the commercial property segment are exhibiting an impressive increase in demand and activity. Let's delve into the key developments driving this revival.

The capital city of Beijing has emerged as a focal point of this resurgence, with prime retail rents experiencing a significant surge. According to a report by property consultancy JLL, rents for prime retail locations in Beijing have recorded the fastest pace of increase since 2019. The report, released on a recent Tuesday, indicated a remarkable 1.3% surge in rents during the first quarter of this year compared to the fourth quarter of 2023. Notably, this surge has been attributed to the growing demand from new food and beverage brands, niche foreign fashion offerings, and electric car companies for shopping mall storefronts. JLL anticipates that this demand is likely to persist throughout the year, further boosting rents, which are still below pre-pandemic levels.

Commercial Real Estate Trends

While commercial real estate, encompassing office buildings and shopping malls, forms only a fraction of China's overall property market, it has displayed promising trends. Sales of offices and commercial-use properties witnessed a notable increase of 15% and 17%, respectively, by floor area in January and February compared to the previous year. In contrast, there was a substantial 25% drop in the floor space of residential properties sold during the same period. These statistics, provided by Wind Information, underscore the contrasting trends between the commercial and residential property sectors. Notably, both commercial and residential property sales experienced a downturn for a significant part of the previous year, indicating a shift in the market dynamics.

The impact of Covid-19 restrictions on movement had initially dampened demand for commercial property in China, aligning with global trends. Despite this, China's economy took a longer-than-expected time to recover from the pandemic, contributing to a broader slowdown in the property market. However, the downturn has presented an opportunity for potential investors, as commercial real estate prices in China are nearing an attractive buying point. Joe Kwan, a managing partner at Raffles Family Office based in Singapore, expressed optimism regarding the potential in the market. He highlighted that the firm is poised to initiate deals in the second half of this year and through the following year, with a specific focus on commercial properties in Shanghai and Beijing.

As the market showcases signs of revival, prominent entities are planning for expansion and forecasting stability. Swire Properties, a Hong Kong-based company, has outlined ambitious plans to double its gross floor area in mainland China by 2032. The company, renowned for operating high-end shopping complexes under the "Taikoo Li" brand in major Chinese cities, expressed positive sentiments regarding the improvement in foot traffic and retail sales in the Chinese Mainland. Tim Blackburn, the chief executive of Swire Properties, emphasized the resilience of their office portfolio despite the challenges in the office market. Looking ahead, the company foresees 2024 as a "year of stabilization" in retail demand, hinting at a positive trajectory for the sector.