Optimism boosted by commercial recovery

China's commercial real estate market will see a recovery in 2023, with the logistics and industrial sectors being bright spots, according to Anthony Couse, CEO of JLL Asia Pacific, an international real estate services provider.

In China's office market, for instance, businesses are restoring their operations after a sluggish period and are now readjusting office space strategies before the market strengthens further.

"Net absorption in grade-A office space in 20 major Chinese cities is expected to almost double to 4.9 million square meters this year," Couse said in an exclusive interview with China Daily.

He added that tailwinds for the logistics and industrial sectors remain stronger than the headwinds. E-commerce-related demand is holding up and is still expected to be a key long-term driver for warehouse space, particularly in emerging Asian markets where the growth story has plenty of opportunities.

"The demand arising from China's modernization drive will energize specific subsectors, such as modern logistics, cold storage, data centers, business parks and life sciences, which are all key infrastructure underpinning the modernization drive," said Couse.

Meanwhile, the commercial real estate investment market in the country's major cities has also seen a notable increase in market vitality, fueled by the economic recovery.

According to JLL, the capital's commercial property market saw investment transactions valued at nearly 5 billion yuan ($730.57 million) in the first quarter, a surge of 10 percent compared with the same period last year.

"We continue to see strong optimism from investors for a sustainable rebound in China's economic growth and the major economic indicators, especially those for manufacturing and services activities, have seen an impressive improvement in the past few months," added Couse.

Investors are pivoting toward real estate sectors that are key enablers of the country's modernization drive.

Onshore capital formation by both domestic and foreign fund managers and increased buying activity by local institutional investors and corporates are clear signs that investors are allocating capital to capture future growth.

In the first quarter of 2023, the acquisition of Suning Life Plaza, a Beijing-based complex with a total area of nearly 100,000 sq m consisting of both office and retail, attracted market attention. Singapore-headquartered property developer CapitaLand completed the acquisition of the complex for 2.8 billion yuan, according to JLL. This transaction further demonstrates foreign investors' long-term positive view of core assets in Beijing, despite short-term market fluctuations.

According to Couse, logistics demand in China is anticipated to be stronger than in other sectors and institutional capital will continue to pile in due to the positive outlook.

Meanwhile, the recent launch of rental housing real estate investment trusts is another feather in its cap.

Consumer-related infrastructure projects have been announced to be included in China's REIT regime, providing significant benefits to retail properties. China's National Development and Reform Commission announced on March 24 it would further expand the asset scope of REITs' pilot program, including department stores and shopping centers. Han Zhifeng, deputy director of the investment department of the National Development and Reform Commission, said it is expected to have over 60 REITs listed by the end of 2023, raising more than 200 billion yuan.

In addition, investors active in the market continue to be optimistic about cash-flow-generating properties, such as offices, rental apartments and logistics properties. Such investment opportunities tend to provide long-term stable cash flow and potential added value.

According to JLL, broadening the REIT pilot to include department stores and shopping malls is not only a significant boon for the retail sector, but also a shot in the arm for the commercial real estate investment market.

"Domestic and foreign investors began actively seeking investment opportunities in the first quarter of this year. We expect that the arrival of commercial REIT policies will significantly boost confidence in the commercial real estate market," said Couse.