China’s Changing Real Estate Markets

The changing nature of China’s cities and economy are transforming commercial property across the main use categories of office, retail, logistics and hotels – as well as the investment landscape.

Domestic investment poised for growth – but transparency needs to improve

China’s domestic investment markets are growing more mature at the same time as recently strengthened capital controls are restricting overseas real estate investment. This means that there is considerable room for growth for China’s US$40 billion direct commercial real estate investment market. Assuming the country makes much-needed improvements in market transparency, there is the potential for China’s real estate investment to reach US$150 billion a year, challenging the U.S. for top spot.

Technology transforms office markets

The technology and new media sectors have emerged as major drivers of demand for the China12’s office space. Co-working spaces and operators are, in part, rising to meet this new demand, dovetailing with growing recognition of real estate as an attractor and retainer of talent. Decentralisation of offices away from concentrated central business districts (CBDs) is another key trend which is starting to spread from China’s top-tier cities to other major centres.

Office Rents and Future-Proofing Score

A New Evolution Curve

Source: JLL, 2018

E-commerce continues to influence ‘bricks-and-mortar’ retail

Leading e-commerce and technology firms continue to provide lessons for China’s physical retail spaces. Retailers and operators are placing greater emphasis on ‘big data’, on providing more unique, ‘experiential’ offers and integrating with online firms to pioneer ‘new retail’ offerings.

‘Satellite’ logistics markets continue to grow

Although demand for modern warehouses continues to boom, some leading cities are restricting warehouse land supply in favour of more productive land uses. In response, ‘Satellite’ markets located over the borders from major cities are fulfilling increasing demand for logistics space and will continue to grow. Examples of this trend include the Wuqing district located between downtown Beijing and Tianjin; and Kunshan, between Suzhou and Shanghai.

Domestic travel continues to boom

China’s booming middle-class population will continue to travel to major cities, with spending set to increase over the coming years. This will help the hotels sector to absorb recent high levels of new supply. Future supply is likely to be targeted at the fast growing market of mid-level domestic travellers, rather than towards the luxury segment.