BMI View: Government stimulus appears to have stabilised the Chinese economy over recent quarters. However, structural issues now pose liquidity and credit risks, with a price correction in real estate, or further contractions in domestic demand, potentially leading to economic turmoil. Commercial real estate is supported by solid demand during a time of uncertainty, especially in the prime office and retail sub-sectors . A s international companies keep demand high for space in established cities such as Shanghai and Beijing , rentals will rise marginally.
The Chinese government has recently looked to expand fiscal spending and new credit, whilst introducing a new tariff on cross-border commerce and maintaining benchmark lending in order to facilitate the gradual depreciation of the yuan. We believe this will stabilise the economy over the short term, and could lead to better performance over the five-year forecast period, as spending into vital infrastructure rises and structural issues are resolved. However, the current economic environment is tense and bureaucracy is rife. Contracting growth suggests the economy could be 'cooling', and a depreciating yuan coupled with a precarious residential real estate sector provides impetus for a further decline in growth, keeping potential investors cautious. Hence, investment growth is expected to continue its downward trend over 2017, which we believe will impact the potential for commercial real estate market integration. We expect commercial real estate in the cities of Shanghai and Beijing to perform fairly well through 2017, due to high demand from foreign investors for prime office and retail space, while Wuhan and Shenzhen will come under pressure from struggling primary and manufacturing sectors. Prices will remain buoyant due to the emergence of e-commerce and logistics that is fuelling higher demand for industrial real estate.
The consensus for the office sub-sector across the cities we cover in our forecast is of stability, with rates marginally increasing in desirable business locations, such as central Shanghai and Beijing, as investor focus remains. Wuhan and Shenzhen will see lower rates of demand, and higher vacancies as a surge of new supply enters the market, which could lead to stagnant rentals over 2017 considering the lower absorption rates witnessed in these locations. As the services sector is becoming a more important contributor to Chinese GDP, we expect to see office space demand pickup, offering opportunities for new market players further down the line.
Retail is performing well in China. The country's growing middle class and its transition into a consumption- and service-orientated economy, in conjunction with developing consumer appetite, is seeing the retail sub-sector thrive, in particular the prime market. The food and beverage and fashion sectors are steady performers, with the former receiving increasing demand from international retailers despite the economic situation. Government control over the delivery of new supply into the market has prevented saturation in the retail sector over the past couple of years, and now a lack of adequate space could see rentals increase over the 2017 period, with investor focus on Shanghai and Beijing.
Rapid industrialisation has underpinned China's exponential economic growth over the past few decades, with the country becoming the leading global manufacturing hub and second largest importer of goods. However, anaemic global demand over the past two years has placed considerable pressure on the primary and manufacturing sectors, leading to government intervention and the introduction of accommodative monetary policy. Hence, the gradual devaluation of the yuan should keep export growth stable, despite falling global demand, and with the growing importance of the logistics and e-commerce sectors in the broader economy, we believe these factors will maintain stable rental rates for industrial real estate across the board for 2017.
Regarding REITs, the market for this particular investment is still in its infancy, with the mainland's first REIT investment structure having only been approved by regulators in June 2015. Shenzhen-based developer China Vanke Co. joined with Penghua Fund Management Co. to create the REIT, which is open to retail investment. Greater market liberalisation in the coming years will help to develop the structures needed to introduce conventional REITs to the economy. However, for the time being, quasi-REITs, structured in a comparable manner to traditional REITs except with more restrictions and legal hurdles, will maintain control in the market.
Investment opportunities are currently available in the commercial real estate market, but careful consideration of the broader economic situation is imperative to ensure assets are not exposed. There is good demand for developments in each of the sub-sectors, with particular attention on prime units and innovative builds for emerging industries, such as logistics and e-commerce. Restrictions on development activity will limit the ability for property developers to integrate, especially as domestic companies dominate the market. Conversely, property managers could benefit in the current market, as the availability of cheaper stock - considering the devaluation of the yuan - may offer opportunities for new players to enter the market.
The China Real Estate Report features BMI Research's market assessment and independent forecasts of major construction projects in the residential and commercial markets, plus rental prices and yields in major cities. The report critically analyses the prospects for real estate within the broader economic and financial context - both domestic and global - via our econometrically-modelled and clearly explained banking and economic forecasts and follows this through to evaluate the implications for REITs.
BMI's China Real Estate Report provides industry professionals and strategists, sector analysts, business investors, trade associations and regulatory bodies with independent forecasts and competitive intelligence on the real estate industry in China.
- Benchmark BMI's independent real estate industry forecasts for China to test other views - a key input for successful budgeting and strategic business planning in the Chinese real estate market.
- Target business opportunities and risks in China through our reviews of latest industry trends, regulatory changes and major deals, projects and investments.
- Assess the activities, strategy and market position of your competitors, partners and clients via our company profiles (inc. SWOTs, KPIs and latest activity).
BMI Industry View
Summary of BMI’s key industry forecasts, views and trend analysis covering real estate and construction, regulatory changes, major investments and projects and significant national and multinational company developments.
Industry SWOT Analysis
Analysis of the major Strengths, Weaknesses, Opportunities and Threats within the real estate sector and within the broader political, financial, economic and business environment.
Industry Forecasts Outlook
Historic data series (2010-2013) and forecasts to end-2019 for the domestic real estate industry and for the local and global finance industry.
- Real Estate: Office, retail and industrial real estate yields for all major cities (%); short term forecasts on minimum and maximum real estate rental prices by sub-sector (USD per square metre and local currency per square metre).
- Construction: Industry value (USDbn); contribution to GDP (%); employment (‘000); real growth (%).
- economy: Economic growth (%); nominal GDP (USDbn); unemployment (%); interest rates (%); exchange rate (against USD).
BMI’s Real Estate Risk Reward Index
BMI’s Risk Reward Indices provide investors (real estate vendors, construction companies and financial investors) looking for opportunities in the region with a clear country comparative assessment of a market’s risks and potential rewards. Each of the country markets are scored using a sophisticated model that includes more than 40 industry, economic and demographic data points to provide an indices of highest to lowest appeal to investors, with each position explained.
Overview of the real estate sector, including analysis of existing/planned real estate developments and emerging industry trends in the office, industrial and commercial sectors
Features detailed city-level data and analysis on rental prices, yields, contract terms and real estate availability with separate chapters covering the office, retail and industrial sub-sectors.
Examines the competitive positioning and short- to medium-term business strategies of key industry players. Strategy is examined within the context of BMI’s industry forecasts, our macroeconomic views and our understanding of the wider competitive landscape to generate Company SWOT analyses. The latest financial and operating statistics and key company developments are also incorporated within the company profiles, enabling a full evaluation of recent company performance and future growth prospects.
*Company profiles are not available for every country. Those reports instead contain information on the current activities of prominent companies operating in the market.