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Capturing the Opportunities Arising From A New Commercial Real Estate Market
13 Jan, 2011, China
The real estate market in China has been through the toughest year in terms of regulations and control in 2010. The policies and limitations effectively restricted the speculation and investment in the housing market, resulting in a much smaller turnover in major cities. However, with the market’s expectations on inflation going up, property is still the primary choice for a lot of investors. Therefore, 2010 saw the first year of the era of commercial property. On the one hand, there have been a lot of activities in the commercial real estate sector, and in the first 11 months, the volume of the transactions for office and retail grew by 48.4% and 50.2% respectively year-on-year. On the other hand, a lot of developers are turning into the commercial real estate business, with a 42.39% growth in investment in the first 11 months of 2010.
According to our research reports which track the most expensive Retail, Office and Industrial space across the world, China’s has delivered another year of strong rental growth with healthy demand from both international and local players and we are seeing the following trends:
- RETAIL: Shanghai’s East Nanjing Road, China’s most expensive retail street, now ranks as the 16th most expensive retail location in the world, while Hong Kong’s Causeway Bay ranks as 2nd. Beijing’s Wangfujing closely follows. We expect that Shanghai will have a more developed retail market than Hong Kong in terms of rentals by 2020. Shopping malls will become the most popular type of retail in China over the coming years.
- OFFICE: Following the economic recovery, rents in major cities are picking up fast and are getting close to the peak-high levels before the global recession in 2008. The robust demand from both MNCs and local companies is taking up available space faster than expected and we project a steady rental growth in 2011 in all major markets in China.
- INDUSTRIAL: Despite the rental values easing in 2009, as declining industrial production rates led to slower occupier demand, 2010 saw an improvement in demand with the gradual recovery of the rents and the year ahead looks positive. We are seeing a lot of activities in the market, particularly the increasing investment in R&D in China. M&A is another growing trend. There is an increasing attention to the 3 major manufacturing and R&D industrial hubs – 1) Shanghai and Suzhou, 2) Beijing and Tianjin, and 3) Shenzhen.
- INVESTMENT: Take Shanghai for example, with the rental rates in office and retail going up and vacancy rate dropping in 2010, the investment market in commercial real estate in Shanghai is out of the shadow of the global financial crisis. In 2010, we saw 22 commercial transactions of complete office buildings in Shanghai, totaling 36 billion yuan, 5 times of the total annual volume in 2009. Among the investment, domestic investors take 57% while foreign 43%; office takes up 72% while retail 28%. In 2011, we predict there will be three trends: 1)domestic institutional investors (i.e. insurance companies) will increase investment in commercial real estate, especially in primary office buildings; 2) With strong confidence in the growing needs from the domestic market, foreign investors will continue to invest in commercial real estate, and expand to the commercial real estate business in second and third tier cities; 3) Due to the restrictions on foreign investment issued by the Ministry of Commerce in December, domestic investors will play a bigger role in the large-volume transaction market.
With the fast pace of urbanization, a considerable number of commercial developments are entering or planning to enter second and third tier cities. Following the urbanization trends in Beijing, Shanghai and other major cities, many city governments have come up with their own ambitious CBD plans, as between now and 2025, China's urban demand for housing and office space will exceed 40 billion square meters.
Regardless, compared to residential real estate market, commercial real estate development is completely a new game in the sense of:
- - Less liquidity
- - No pre-sale market, longer time horizon
- - High reliance on asset management
- - Not suitable for strata-titled sale
- - Highly sophisticated buyers, investors and occupier etc
Facing these challenges, although some have made some good, financially successful achievements in this sector, they are predominately “old wines in new bottles”, with little changes in the way they operate – selling commercial properties in a residential way, which could directly lead to the failure of the projects.
Therefore, developers who are marching into the commercial real estate sector are in urgent need for professional assistance and services with development consultancy, marketing, sales/leasing, asset management, etc. This also brings unprecedented market opportunities for Cushman & Wakefield, a professional commercial real estate services company.
As the largest privately held commercial real estate services firm with almost 100 years history, Cushman & Wakefield has 230 offices in 60 countries. With its wide experiences in commercial real estate services, Cushman & Wakefield is committed to provide our clients with professional services at the highest standard. Cushman & Wakefield is excited to bring best practices from our experience with some of the world’s most iconic developments as 1 World Trade Center in New York, Heron Tower in London, Shanghai Tower, China Central Place in Beijing, to China’s developing commercial real estate.
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