China's commercial office and retail sectors are about to add a biblical amount of commercial product to their inventory to meet the phenomenal speed of economic growth of their people over the next eight years, according to data from Jones Lang LaSalle's new report China50: Fifty Real Estate Markets that Matter, released today. The China50 report by Jones Lang LaSalle is an in-depth analysis of China's future commercial real estate potential. doha sale
Jones Lang LaSalle Greater China managing director KK Fung tells World Property Channel, "The size of construction and the momentum of economic development are transforming the new China50 at an unprecedented rate. They are the cities that we predict will make headlines in the coming decade and will offer chances beyond those found in Tier I cities."
According to Michael Klibaner, head of research at Jones Lang LaSalle China, "China50 holds all of the world's ten fastest expanding big cities, led by Chongqing, Tianjin, and Chengdu, and is predicted to account for 12% of overall global economic growth over the next decade. These figures indicate that China50 is one of the most fascinating real estate markets in the world."
Over the next decade, over 100 million square meters (1 billion square feet) of commercial space will be developed, providing much-needed high-quality stock to these 50 cities. As developers move deeper into China50, they are also assisting in the expansion of domestic and international corporates, retailers, and hotel operators into Tier 3 cities as they seek a 'first mover' advantage by tapping into favorable demographics "Institutional investor interest in commercial real estate in the China50 will grow as the volume of tradable property assets grows and transparency improves. Their concentration will be on the retail sector, which offers the most real estate opportunities, thanks to substantial increase in China50's middle class population, which is predicted to double by the middle of the decade to over 125 million people." Mr. Fung remarked.
There are also significant potential in the logistics sector, where international grade stock is severely under-supplied; China's total modern logistics stock is barely comparable to that of Boston in the United States. Improving transportation infrastructure, retail expansion, and a relocation of China's manufacturing base inland will all help to increase logistics prospects.
KK Fung ended by saying, "The China50 has a compelling long-term growth story, but the road to maturity will not be easy, and concerns about excessive risk may cause some caution in the property market in the short to medium term. They will not be immune to global economic fluctuations, but some China50 cities, such as Chongqing, Wuhan, and Xi'an, may prove to be more resilient than others, thanks to China's internal economy's structural growth."
The following are some of the highlights of JLL's China50 Report:
Jones Lang LaSalle has identified 50 secondary and tertiary locations in mainland China with significant commercial real estate possibilities. The magnitude of construction and the momentum of economic development are transforming the China50 at an unprecedented rate. They are the cities that, in our opinion, will make headlines in the coming decade.
The China50 depicts a global market on a continental scale. It has a GDP of $2.9 trillion, which is equivalent to Germany's. It would be the world's fifth largest economy if it were a single organization. Its cities are expanding at a faster rate than the rest of China. Over the next decade, the China50 will account for 12% of global growth.
Commercial real estate activity is moving at a breakneck rate. Over the next decade, the China50's major cities will add more than 80 million square meters of retail space and approximately 30 million square meters of Grade A office space as they grow and modernize. This will provide the market with much-needed high-quality supplies.
A city hierarchy is emerging. Nine cities have distinguished themselves from the pack since our last assessment in 2009. They are Chengdu, Chongqing, Dalian, Hangzhou, Nanjing, Shenyang, Suzhou, Tianjin, and Wuhan, and they are referred to as Tier 1.5 cities. These cities are maturing and riding the crest of a major infrastructure and economic development wave.
Chongqing, Shenyang, and Tianjin have the highest momentum, while Wuhan and Xi'an provide considerable upside potential across many industries.
The growth balance has changed from coastal to interior and northeast cities, as evidenced not only by Chengdu, Chongqing, and Shenyang's stellar performances, but also by the emergence of Tier 2 cities in central China, such as Changsha, Zhengzhou, and Hefei.
Some coastal cities, particularly those in the Pearl River Delta, have lost ground momentarily as they undergo reconstruction. As they advance up the value chain, though, momentum will return.
On the strength of significant middle-class expansion, the retail sector will present the largest real estate potential in the China50. International retailers are investing heavily in China50 in order to take advantage of favorable demographics. They're quickly growing into Tier 3 cities including Harbin, Kunming, and Guiyang.
Significant real estate prospects exist in the logistics sector, where international grade stock is severely under-supplied - China's entire Grade A stock is only similar to that of Boston in the United States. Improving transportation infrastructure, retail expansion, and an industrial move inland all help to increase long-term prospects.
Within the China50, office market activity will concentrate even more in Tier 1.5 cities, where stock quality is increasing and demand from domestic firms will support expansion. Chengdu will be the most important office market, with Chongqing, Tianjin, Wuhan, and Xi'an following closely behind.
Demand from new high-value priority industries aligned with the 12th Five-Year Plan, such as new IT, biotechnology, and clean energy, is expected to drive growth in business park space. Chongqing, Wuhan, Xi'an, and Shenyang have the best demand growth prospects.
New opportunities are emerging for international hotel operators in Tier 3 cities, but to compete effectively in these unproven markets, operators will need to be more adaptable and agile.
Institutional investor interest in commercial real estate will rise as the volume of tradable assets rises throughout the China50, although it may ebb and flow depending on risk appetite and liquidity. The retail and logistics industries, which encapsulate the dynamics of constantly developing consumer markets, will be their emphasis.
The China50 will continue to offer a strong long-term growth story, but in the short to medium term, concerns about excessive risk may cause some caution in the property market. They will not be immune to global economic fluctuations, but China's inland cities may prove to be more resilient than others, thanks to China's domestic economy's structural growth.