Global property investors see signs of recovery in China, but wary of oversupply: JLL

Global property investors are cautiously optimistic about the signs of recovery in China's office and retail property markets, according to JLL, the global real estate firm. Stuart Crow, JLL's CEO for capital markets in the Asia-Pacific region, stated that international investors will return to mainland property assets once oversupply concerns are addressed and fresh take-up occurs. He emphasized that patience is required for a full recovery, as the real economy needs to fully absorb the commercial property spaces.

Crow explained that a balance between new supply and take-up is emerging, with oversupply concerns now eased. However, he added that big institutions like real estate funds and insurers would only return to the market if commercial properties could generate sufficient income. Commercial property transactions in major cities such as Shanghai and Beijing surged in the first half of the year, with local buyers, including corporate investors and high-net-worth individuals, snapping up prime locations on the belief that property prices would soon bottom out after a prolonged downturn.

Prices of office buildings in Shanghai had dropped by 30 to 40 percent from their peaks due to a national property crisis that began in 2021, prompting investors to find bargains. Despite the potential oversupply in the broader market, Crow highlighted that the top office assets would recover first and at a quicker pace. The launch of the mainland's first exchange-traded real estate investment trusts backed by commercial properties has also provided a new financing source for property owners, further spurring buying activity.

JLL's recent report evaluating top office properties in Shanghai revealed that some "elevated premium grade A" office buildings are demonstrating exceptional resilience and outperforming the market. These high-end properties have shown consistent advantages in rental premiums and vacancy rates compared to regular grade A offices.

Daniel Yao, head of research for JLL China, noted that the elevated premium grade A offices have experienced stable and bottoming-out office rents, with an average of 8.5 yuan (US$1.27) per square metre per day in the second quarter of the year. Nearly 70 percent of these high-end offices recorded positive or flat rental growth in the first half of the year, further driving the overall office market recovery.