China‘s Commercial Real Estate Sector Faces Headwinds, Developers Offer Concessions
China’s commercial real estate sector is experiencing a “severe” downturn, exceeding the challenges faced by the broader economy, according to industry executives. The market is undergoing a ”structural adjustment” driven by oversupply and insufficient demand following decades of rapid growth, and a full recovery is expected to take time.
China Merchants Commercial Reit executive director Guo jin stated that the market requires further correction and policy impacts won’t be immediate. The company is absorbing increased costs, including those related to electric vehicle charging for tenants, noted Mr. Liu Zhongliu, who oversees some of its property assets.
Local authorities are attempting to support the office market through measures like rental subsidies,repurposing older buildings for residential use,and pausing new land sales designated for commercial development. Though, Savills’ Mr. MacDonald believes the most effective government action would be to bolster the overall economy rather than directly intervene in the office market.
Developers are responding to fierce competition by offering rental concessions to maintain occupancy rates. Hang Lung Properties, a Hong Kong developer, reported a 5% drop in China office rental revenue in the first half of the year, with its Shanghai properties experiencing the most significant pressure due to abundant supply and declining rents.
Hang Lung Properties’ chief executive Weber Lo emphasized the necessity of rent reductions to retain tenants, noting a lack of expansion among multinational corporations and a growing search for more affordable spaces.
The challenges extend beyond the office sector.Shenzhen International, a state-owned logistics warehouse developer serving clients like JD.com and Walmart, is also grappling with tenant retention. Chairman Li Haitao revealed that CEO Liu Zhengyu is actively engaging with tenants to maintain relationships amidst the arduous market conditions.
