International Demand for Chinese Real Estate Wanes, but Office Spaces Remain Strong

Horizon_Resort_Apartment,_Suzhou

According to recent reports, institutional investors from around the globe are revising their expectations of the Chinese real estate market. As of late, investors have been more inclined to put money down in Japanese and Australian real estate, despite the booming interest in China’s major cities in 2015.

China’s second-tier cities—provincial capitals and other metropolises besides the countries most well-known locales—have declined in popularity, with only around 20% of investors targeting them. This is down from about 34% in 2015, when investors hoped that these second-tier cities would grow and make their investments pay off.

This change in investors’ opinions goes hand-in-hand with concrete changes in China’s real estate market. Recently, the market has faced problems of oversupply in all fields, from housing to office space. This is especially true in smaller, growing cities—precisely the type that investors were previously targeting.

To counteract this, investors have temporarily returned to the major metropolises, where demand is guaranteed and supply is physically limited. These mature markets are safer in that they’re more difficult to oversupply. One can only fit so many new buildings in Beijing.

What’s interesting is that, despite this hiccup in real estate demand, the office market is booming. China’s first-tier cities are one of the top destinations for office investments, second only to Toyko. In the previous survey, their demand was ranked 8th rather than 2nd. In contrast, industrial and retail assets in China’s top cities did not even make the top 10 list.

As it stands, office spaces in Tokyo, Sydney, and Melbourne still boast impressive demand, hovering near the top of the interest list year after year. But despite the hiccup in China’s real estate market, top-tier cities like Beijing and Shanghai should see an increase in office purchases in 2016.