In contrast to the gloomy status of the residential housing market, commercial property is a shining light in the Chinese real estate market.
Offices, warehouses, and business parks are proving durable, continuing to churn over solid rental revenue — albeit discounted due to reduced demand, according to real estate analysts and developers.
Despite a 37% decline in revenue from housing development and sales in China, Hong Kong-listed real estate giant KWG Group Holdings recently reported that earnings from rents from offices and other commercial property increased 6% in the first half of the year.
In a similar vein, property giant CIFI Holdings reported a 69.5% increase in its property investment revenue despite a 23% year-over-year decline in home sales in China for the first half.
While the business reported lower revenue from malls and hotels owing to pandemic lockdowns, prime office rents increased 16%, which Vice Chairman Adriel Chan called a “pleasant surprise.” Hong Kong’s Hang Lung Properties reported a slight bump in its first half profits in July.

“Office has done surprisingly well for us. It now accounts for about 20% of our mainland China revenue. And it’s been very resilient. I know that not all developers have had the same experience. And so yes, we would continue to look at offices,” Chan stated in late July on “Squawk Box Asia” on CNBC.
Occupancy rates at Hang Lung’s office towers in Wuxi, Kunming, and Wuhan continued to climb, while levels in Shenyang and Shanghai kept steady despite bleak prospects for new rents. Hang Lung primarily invests in commercial real estate in mainland China.
Benefits for the commercial sector
According to Nicholas Spiro, a partner at the real estate consultancy firm Lauressa Advisory, Chinese commercial property investors and their renters do not have the same problems as their residential counterparts, who are dealing with slower sales as well as recessionary and debt constraints.
The confidence crisis that has engulfed the property market has not spared the commercial sector. Spiro noted that while some investors liquidated assets to maintain liquidity, the commercial sector often enjoys more benevolent fiscal and governmental policies.
“While Beijing is seeking to deflate the bubble in the residential market without crashing the economy, it is prioritizing investment in infrastructure and the new economy, which benefits the industrial and logistics property sector in particular,” Spiro said.
He also believes that China’s commercial sector has opportunity to grow, with “huge scope for further development in secondary cities.”

“And Chinese companies’ conservative mindsets — which make pandemic-induced changes to working patterns more problematic than in the U.S. and U.K. — augur well for the sector in the long term,” he said.
In addition to more general supporting policies, Chinese authorities also have more specific programs to aid landlords, such as lowering taxes on urban property usage and giving landlords subsidies to pay for waived rent.
Regarding renters, global real estate investor Hines expects increased demand for retail and office space as firms find chances in a weak market, leading to many opening offices or leasing space, despite the difficulty of lockdowns and China’s Covid-zero regulation.
“We are seeing retailers use the current market reset to experiment with new brand concepts and experiences,” affirmed Claire Cormier Thielke, country head for China at Hines, which has real estate holdings on the mainland of China.
“For the office, we’re seeing tenants looking to upgrade to spaces and locations better suited to their needs and modern, more collaborative work.”
Overall, the resiliency of the Chinese commercial real estate market lies in its capacity to recover more quickly than its residential equivalent.
In China’s worst lockout, which occurred in Shanghai between the first and second quarters of this year, new office supply and leases decreased by 56% and 75%, respectively, according to real estate adviser CBRE’s most recent China update.
In 18 of the markets that CBRE was tracking, rents decreased. The company’s national rental index declined 0.5% on a quarterly basis.
Rentals in the retail sector were also severely affected, falling 87% from a year ago and 44% from the prior quarter in the second quarter.
While rentals increased over the second quarter, logistics performed worse than they had the previous year.
Down but not out
Contrary to housing, the business sector is recovering, especially since lockdowns were lifted and government incentives began to take effect, according to CBRE. CBRE predicts that the commercial sector will do well for the remainder of the year, with the exception of retail.
Shaun Brodie, head of occupier research for Cushman & Wakefield in greater China, said that tenants in the financial, technology, media, telecom, and life sciences industries will drive demand for space during the recovery.
“Into 2022, the central and local governments in China have taken active measures to deal with the epidemic and effectively promote steady economic growth,” Brodie said.
According to investment research firm MSCI, the flow of deals and sales of commercial real estate in China have also decreased.
Again, unlike the housing market, the commercial real estate market is experiencing a better transaction recovery because there are still numerous participants willing to acquire and sell assets who are not constrained by financing limitations, according to Benjamin Chow, head of Asia real assets research at MSCI.
“Domestic institutions are a good example – they were the biggest buyer group this year. Within this group, insurance-backed players, banks and financial groups were among the biggest purchasers of commercial real estate year to date,” he said.
“Another buyer group comprises the corporates, which made a big splash last year, and have still been relatively active in 2022.”