Summary

The Chinese economy experienced astonishing growth in the last few decades that catapulted the country to become the world's second-largest economy. Economic headwinds strengthened over the course of 2018 amid deleveraging, supply-side reform and US-CHINA trade conflict. Economic data published in December indicated slower export, manufacturing, consumption, real estate investment, and sales growth.
Despite a range of headwinds including the US-China trade conflict, slowdown of the TMT industry, and supply peak, the Chinese office market is expected to go ahead in 2019, underpinned by the transforming co-working sector and further economic open-up policies
China’s real estate sector took approximately 42% of the total financing in the economy in 2016, according to the UK-based Royal Institute of Chartered Surveyors, making it a prime target for the government.
Larger developers, backed by robust sales in 2017 and better access to financing, were leading market rationalization and further expanded in 2018 by taking market shares from smaller, less financially capable developers in the market. Progress toward creating a well-functioning rental market, property taxes, and the REIT market were the key factors observed in 2018.
Commercial real estate investment transaction volumes in China in 2018 reached CNY 251.7 billion (USD 37.6 billion), up by 4% from the previous year and a record high. While purchases by domestic investors fell by 10% year-on-year, foreign-funded institutions invested more than CNY 78 billion in Chinese commercial property, a 60% increase compared to 2017.

Key Market Trends

Enormous Foreign Investments in Chinese Real Estate Market

According to recent NBS data, Foreign investors have significantly increased their presence in China's commercial real estate sector, investing CNY 78 billion ( USD 11.5 billion) last year, a record since 2005 and up 61.5 % Year-on-Year.
Throughout 2018, commercial real estate transactions hit a record high of CNY 251.7 billion, up 4 % Year-on-Year. Foreign capital flows into the sector snowballed, from CNY 26 billion in 2016 to CNY 48.3 billion in 2017.
Financial industry continues to dominate the market while leasing demand from consumer goods, automobile, and pharmaceutical companies increased rapidly during the review period.
According to JLL's data, 56 % of the nation's commercial property investment went to Shanghai, which is considered a stable and long-term investment destination among investors both, from home and abroad.
Both two largest deals made by foreign investors last year took place in Shanghai. These were CapitaLand's and Singapore sovereign wealth fund GIC's purchase of Shanghai's tallest two towers at Harbor 55, and Blackstone's purchase of Mapletree Business City.
The former deal, which cost CapitaLand and GIC CNY 12.8 billion, is also the biggest single purchase CapitaLand has made in the Chinese mainland so far.

Office Segment Observes Fast Growth

As a main driving force for China’s office market, the financial industry accounts for most of the office-space demand in almost all Chinese cities. Traditional financial institutions contributed the most occupied space.
Commercial banks and insurance companies looking to establish local headquarters usually have a large demand for office space, as evidenced by most spaces larger than 5,000 sq. m being absorbed by tenants from the traditional financial industry, even though they also would be able to purchase such spaces. At the same time, large financial companies were aggressive in expanding their branches and relocating back offices to secondary and decentralized locations.
Additionally, the co-working sector has grown very quickly and has become very crowded during the last year. Besides professional operators and start-ups, more players joined the market, which increases competition. For instance, many developers have established their own brands, such as EasyWork by Longfor, C3 by CapitaLand, WeWa by Kaisa, and OfficeZip by China Overseas.

While the financial sector constitutes most of the demand, the IT sector has stolen the spotlight in many leading cities, which includes Internet giants like Baidu, Tencent, etc.
These kind of IT companies and new startups are expected to continue their rapid growth, securing premises close to leading universities and colleges. The explosive growth of the IT sector will continue to translate into an increasing portion of office demand.
Robust economic and tertiary industry growth continued to support office demand. Though office markets in most Chinese cities are faced with oversupply, most of the cities still performed well.


Competitive Landscape

The China commercial real estate market is expected to be slightly fragmented with the presence of large number of players. The market is characterized by the presence of large players and emerging players in the market. At the same time players in the residential real estate market are also diversifying to invest in commercial real estate market in China. foreign investment has increased in the market owing to which foreign players also entering the competitive scene.

Additional Benefits:

The market estimate (ME) sheet in Excel format
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