Are there lessons to be learned from China’s recovery profile?
China was the first market majorly impacted by COVID-19, causing unprecedented lockdowns and restrictions on mobility, and resulting in its economy contracting by 6.8% in the first quarter. Two months after the introduction of these measures, the number of new cases in China has declined significantly and the COVID-19 outbreak appears to be stabilizing. However, recent events elsewhere show this unpredictable virus can easily re-emerge. China is now starting to loosen lockdown measures and the world is watching.
At the height of the outbreak, COVID-19 brought most Chinese industries to a standstill. Now, many traditional industries are slowly returning to normal. At the same time, others are seizing emerging growth opportunities with potential positive impacts for real estate markets. These include the digital economy, online entertainment, insurance, healthcare, and real estate technology.
Office sector: The return-to-office rate varies by city, with 80–100% in Shanghai and 75-80% in Chengdu and Chongqing. Leasing volumes have slowed and renewal has become the preferred choice of tenants. The ‘new economy’ companies appear to be faring relatively well with increased enquiries from tech firms. There is now also an increased focus on safety.
Retail sector: Malls are slowly coming back to life, albeit with precautionary measures including temperature checks and social distancing measures. Leasing activity remains subdued and it is possible that there will be further impacts from the lockdown in Q2. International brands are selectively continuing their expansion plans while grocery stores and supermarkets are benefiting from people staying in rather than dining out. Brands have accelerated their adoption of integrated online and offline sales as consumers prefer to avoid crowded shopping areas.
Logistics sector: The logistics sector exhibited a degree of resilience during the outbreak due to tenants such as e-commerce companies. Freight traffic and warehouse parks have now resumed operations. Trends such as fresh food deliveries have accelerated and demand for cold chain logistics is expected to increase.
Hospitality sector: According to STR, 87% of hotels in China have now reopened, although most are reporting low occupancy rates (below 30%). Restrictions are still in place, with inter-provincial trips discouraged and travel bans on foreign visitors. There are some signs of recovery with improving staycation demand in resorts located an hour away from major cities.
Capital markets: Investors are still showing strong interest in China’s commercial real estate market. While the outbreak may have postponed some deals, other negotiations have been pushed through with confidence from investors, particularly domestic. Investors are focusing on the longer-term potential.
For further information please see the full report below:
COVID-19: Global Real Estate Implications