China’s residential market is struggling, commercial may be bright spot

Commercial property is a bright spot in Chinese real estate, in contrast with the doom and gloom of the residential housing market.

Property analysts and developers said offices, warehouses and business parks are proving resilient, and continuing to turn over steady rental revenue — albeit discounted due to softer demand.

Hong Kong-listed property group KWG Group Holdings recently said earnings from rents from offices and other commercial property rose 6% in the first half of the year, even though revenue from housing development and sales in China had fallen nearly 37% from a year ago.

Likewise, property group CIFI Holdings posted a 23% year-on-year drop in home sales in China for the first half, but reported a 69.5% lift in its property investment revenue.

In July, Hong Kong’s Hang Lung Properties reported a small lift in its first half profits, which Vice Chairman Adriel Chan called a “pleasant surprise.” While the company reported lower revenue from malls and hotels due to pandemic lockdowns, prime office rents surged 16%.

Hang Lung Properties enjoyed a 1% rise in underlying profits despite zero-Covid policy: Vice chair

“Office has done surprisingly well for us. It now accounts for about 20% of our mainland China revenue. And it’s been very resilient. I know that not all developers have had the same experience. And so yes, we would continue to look at offices,” Chan told CNBC’s “Squawk Box Asia” in late July. 

Hang Lung, which primarily invests in commercial property in mainland China, saw occupancy rates at its office towers in Wuxi, Kunming, and Wuhan continue to rise, while levels in Shenyang and Shanghai held up amid dim prospects of new rentals.

Advantages for commercial sector

Property in China will become a sector with low profit margins in 5-10 years, says analyst

Fixed asset investment data for the first five months of 2022 showed real estate investment declined at a greater scale than it did during the first four months of the year. Pictured here on May 16 is a development in Huai’an City in Jiangsu province in east China.

CFOTO | Future Publishing | Getty Images

Rents declined across 18 markets tracked by CBRE. The firm’s national rental index fell 0.5% quarter-on-quarter. 

Retail leasing was also hit hard, with rentals in the second quarter plunging 44% from the previous quarter and 87% from a year ago. 

Logistics did better with rentals lifting over the second quarter, but were down compared with last year. 

Down but not out

The logistics market is 'very strong' across Asia: Colliers
Chinese property giant Evergrande has a huge debt problem – here's why you should care

Source link