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The View | Amid a property market crisis, China’s commercial real estate has held up
- Given the bleak domestic and external backdrop, the strong performance of China’s commercial real estate investment market is remarkable
- It shows that a solid domestic investor base, a sharper repricing of property values and policy support for key sectors can make a difference
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Pessimism engulfs China’s economy and markets. A toxic combination of a cyclical and structural downturn, deep-seated problems in the housing market, a loss of confidence in Beijing’s management of the economy and persistent geopolitical tensions has severely undermined sentiment.
Foreign direct investment last year fell to its lowest level since 1993. The MSCI China index, a gauge of stocks listed at home and abroad, is down 55 per cent since its February 2021 peak while the value of Chinese stocks held by foreign investors has fallen 30 per cent over the past two years.
In Bank of America’s latest monthly global fund manager survey, a short, or underweight, position in Chinese equities was the second most popular trade in markets.
Given such a bleak domestic and external backdrop, the strong performance of China’s commercial real estate investment market is a remarkable feat. According to data from MSCI, transaction volumes last year reached US$37.5 billion, the highest in Asia and slightly more than in Japan, the region’s most popular market.
While a significant portion of investment activity was attributable to distressed sales as vulnerable developers offloaded assets to help shore up their operations and pay off their debts, strong demand for logistics properties and rental apartments – two of the most sought-after commercial property assets globally – contributed to China’s strong performance.
Indeed, among the major cities in Asia, Shanghai was the second most actively traded market behind Tokyo, outperforming Seoul and Sydney, two other top performing commercial property markets in recent years.
Nicholas Spiro is a partner at Lauressa Advisory, a specialist London-based real estate and macroeconomic advisory firm. He is an expert on advanced and emerging economies and a regular commentator on financial and macro-political developments.
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