Hong Kong, July 31, 2014 — CBRE today releases its China Real Estate Market Q2 2014 Review, analyzing the performance of four real estate sectors.
The report illustrates that while the office market is gradually recovering as demand picks up, the strongest momentum actually comes from the logistics market which has seen solid demand from service and supply chain providers.
Frank Chen, Executive Director, Head of CBRE Research, China, commented on the report results. “In Q2 2014, demand for office space gradually recovered, predominantly driven by domestic occupiers. Retail demand remained stable with fast fashion (FFBs), affordable luxury and F&B brands being the most active.”
“The upward momentum for logistics rents continued into Q2 2014, but growth rate has decelerated to 0.6% q-o-q. While Q2 is traditionally a peak season for sales, the residential market remained soft as the overall credit market remained tight.
“Looking ahead, new supply for office and retail will remain abundant in H2 2014. Concerns on over-supply in most of China’s Tier 2 cities will further build. In the residential sector, a number of local governments have started to partially relax or even lift the Home Purchase Restrictions. A number of domestic banks also gradually relaxed mortgage lending. Hence, we expect transaction volume to gradually recover in H2 2014. However, residential pricing is likely to experience some mild correction as developers accelerate their launching schedule.”
China Office Market
Total new office supply nation-wide amounted to 1.31 million sq. m. in Q2 2014, up 3.5% q-o-q. Over 40% came from West China while those from South China have plummeted to a new low since 2013. Overall vacancy rate went down 0.3% points to 15.6%, but there was a divergent trend between Tier 1 and Tier 2 cities. The nationwide average office rents reported a mild uptick of 0.3% q-o-q, with 0.5% averaged in Tier 1 cities, and a flat trend in Tier 2 cities.
Looking ahead, office demand is expected to remain stable as the market has shown signs of the burgeoning of typical financial institutions. Supply-wise, massive new supply and rapidly growing stock will impose pressure on landlords.
China Prime Retail Market
Fast fashion brands regained expansion momentum after a quiet quarter in Q1. New entrants expedited their expansion into Tier 2 gateway cities after their debuts in Tier 1. Although luxury brands remained cautious about expansion, there were a number of high profile new openings of large luxury shops in Tier 2 cities.
In the F&B sector, high-end F&B consumption was dented by the Chinese government’s anti-corruption campaign. Most of these high-end F&B operators responded by repositioning and adopting a multi-brand strategy. More retail operators have been struggling for property facility upgrades and tenant mix adjustment amid the waves of booming e-tailing and concentrated supply.
Looking forward, new supply in H2 2014 will remain abundant. The supply surge, together with the booming e-retail, will continue to exert pressures on the retail sector, with more cases of department store closures expected.
China Industrial Logistics Market
The prospering integrated logistics service and supply chain providers are now generating more demand for standard warehouses across China. Apart from 3PLs, occupier demand from IT and related industries was also active.
The logistics market will continue to be an investment hotspot in China with broader interests from investors given its attractive yields and resilient demand. Land plots with strategic locations will be the key focus in terms of site selection. In order to achieve a higher plot ratio, the trend to “go vertical” in warehouse development is anticipated to become mainstream given long-lasting industrial land scarcity and the current governments policy preferences
China Residential Market
Transaction volume in Q2 down 9.2% y-o-y as the overall credit market remained tight and market sentiment remained weak. In line with sluggish residential sales, the land market rapidly cooled as developers became more cautious. Unsold inventory continued to accumulate, with a number of major cities reporting an inventory level of over 24 months.
Looking ahead, under the pressures of tight liquidity and financial reporting, supply is expected to increase as developers become more active in launching projects. To attract prospective buyers, developers will have to resort to various measures, including price cuts and down payment subsidies, etc. Unless there is a significant improvement in the overall credit market, transaction volume is likely to drop y-o-y for the first time since 2008 and prices will continue to decline.
Neither CBRE nor its affiliated companies make any warranties or claims on the implied accuracy of the information contained herein.
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