China’s commercial real estate investment markets remain resilient and positioned for growth in the post-pandemic era

December 27, 2022, Shanghai – Amidst the global headwinds and financial markets volatility in 2022, many real estate investors have been taking the opportunity to review, strategize and reposition their portfolios to better weather these changes going forward. According to JLL’s latest "Positioned for Growth – Investing in China Real Estate in 2023" report, global growth is expected to slow significantly in 2023, with weaknesses in many developed markets while Asian economies continue to show resilience. Meanwhile, with the removal of Covid-19 control measures and strong policy support, China's economy shows strong prospects of rebound with sustainable growth in the post-epidemic era, signalling positive prospects for commercial real estate investment. 

According to Eric Pang, Head of Capital Markets, JLL China, in times of uncertainty and high inflation, real estate assets are often seen by investors as an effective partial inflation hedge. When formulating real estate investment goals and plans for 2023, investors should fully understand the divergent economic trajectories in the major economies in the coming year, be well prepared for future uncertainties, and capture the price correction window to increase their real estate portfolios for future growth. 

Asia remains resilient against rising global uncertainty, while China leads global economic growth in 2023

The US Federal Reserve raised rates six times in 2022, at the fastest pace in the last forty years, and many central banks around the world followed suit with close synchronicity in raising rates as well. Exacerbating the already high inflation in many countries is Russia’s war against Ukraine, which boosted energy and food prices and created additional upward pressure on inflation, especially for European countries. Prices for gas and electricity have risen by 29% on average in local-currency terms in western European cities. 

In IMF’s World Economic Outlook (October 2022), global real GDP growth will slow dramatically from 6.0% in 2021 to 3.2% in 2022 and 2.7% in 2023, while re-opening of Asia Pacific economies in 2022 has resulted in recoveries in economic growth with lower inflation than in the West.

According to Consensus Economics, forecasts of China’s GDP growth in 2023 range between 2.5% and 6.0%, with median of 4.8%, significantly higher than the rest of the world (except India). With the recent relaxation of epidemic prevention measures, China’s 2023 GDP growth may be revised upwards as momentum of post-pandemic recovery becomes clear.

Strong supporting policies to reignite confidence in real estate investment in the Chinese market

Benny Chin, Head of Equity Advisory, Capital Markets, JLL China pointed out that the Chinese government took several major steps in Q4 2022 to reignite confidence in the real estate sector, including a 16-point plan to alleviate liquidity concerns, a plan to allow developers access to pre-sale proceeds, restoring financing by real-estate related listed companies, and the pilot launch of real estate private equity investment fund and REITs implementation.

On the bright side, the key demand drivers brought about by China's modernization would continue to energize specific sub-sectors such as modern logistics, cold-storage, data centers, business parks, and life science labs. Likewise, as China’s urbanization wave has had a good twenty years run, commercial real estate in mature urban centers is now ready for regeneration and upgrading and these repurposed commercial and residential spaces would satisfy the need for communities, personal and social growth in sustainable and resilient ways.

Since early December 2022, many cities across China are moving quickly to remove COVID containment measures, signalling the country is entering a post-pandemic era.

“We believe these changes in China’s development towards modernization, innovation and growth would provide a strong and stable base for the real estate industry to rebuild. Recent measures will undoubtedly alleviate some of the liquidity stress and reignite confidence for professional investors and residential buyers”, Eric Pang said. “Among the domestic and foreign investors that we are advising, some of them regard this timeframe as an ‘once in a lifetime opportunity’ to increase their China real estate allocation at good pricing. They are keen to play a role in an economy that has been taking a temporary pause, but soon to be powering its way to become the world’s largest economy within a decade. ​”

Benny Chin further added: “Recent Renminbi capital formation and increased buying activities by local institutional investors and corporates are also signs that investors who have a deeper understanding of local factors, are taking advantage of the price correction to capture future growth.”

Over the past decades, China’s capital markets, financing markets, and real estate markets have been undergoing many changes towards increasing sophistication and maturity. The needs for professional investment advice for more complexed portfolio transaction are also growing as a result. JLL Capital Markets team is committed to helping investors succeed in strategizing and executing on complex real estate transactions and capture the right opportunities in the markets in the coming year. 

Please click here to download the report.