The more stable macroeconomic indicators recorded in H2 2016 have provided room for policymakers to fine-tune the loose credit conditions and introduce proactive fiscal policies to stimulate economic growth. Supported by government-led campaigns to promote mass entrepreneurship and innovation, strategically important emerging sectors including information technology, bio-industry, new energy vehicles and digital and creative industry will continue to gain momentum in 2017. In turn, the growth of these sectors will create new demand for commercial real estate. As the Chinese economy enters the “new normal” era of growth, business, consumer and technological innovation will penetrate established commercial real estate business models and create new opportunities in the sector.
Multinationals office occupiers will remain cost sensitive in 2017 and refrain from expansion. Chinese firms will continue to expand but at a slower pace due to tighter capital controls. A total of 2.8 million sq. ft. (NFA) of new office supply will be completed by the end of 2017, the highest figure since 2008. The majority of new supply is located in decentralized areas and will place downward pressure on rents in submarkets including Kowloon, which is expected to see a rental decline within the range of 10%. Rents in Central will edge up slightly given the district’s extremely low vacancy.
Despite tight availability of investment assets for sale, investment activity, however, is anticipated to increase somewhat during 2017 as some vendors may soften their pricing stance in order to spur investor interest. Office capital values are forecast to fall 5-10% in 2017 as local buyers continue to be cautious and selective about locations. Hotel capital values will also face downward pressure. With limited availability of retail assets for sale while industrial properties will continue to be sought after by domestic owner-occupiers, capital values in these two property sectors are expected to remain broadly stable.