While the Sino-US disputes last year, foreign businessmen were still actively expanding in China. Source reported that the China’s foreign direct investment continued to rise by 4% last year to USD 1.63 billion, a record high since 1983. The amount of foreign direct investment first superseded the United States and jumped to the top of the world. Market sources indicated that in the commercial property investment market for the twelve months ending September 2020, among the significant transactions, more than sixty-five percent of overseas capital was invested in asset classes in the office and retail property markets. Properties including logistics industry assets and data centres have gained popularity by overseas funds significantly.

Non-domestic property market in China for 2021.
Non-domestic property market in China for 2021.

In 2021, the office market is expected to be one of the sectors that could attract investors to pay attention to it. Nevertheless, yield of office property is not expected to have much change, given the current high level of office inventory and the time required to regain office demand after the pandemic is over.  There could be a slight improvement in the net yield of Grade A office in the first-tier cities, ranging from 3.9% to 4.75%. And there could be a rebound in the overall office property market transactions, amid the fading out of pandemic and lower market uncertainty.  In other words, the office vacancy is likely to stay high with falling rents in the short term.

Under the pandemic, the vacancy rate of shopping malls has increased. Due to pressure on business cash flow, some merchants are forced to withdraw their leasings. Fortunately, both residents’ income and consumer spending can recover steadily, since the pandemic in China has been under control.  There has been a gradual improvement in residents’ consumer demand, and a recovery in market sales. Besides, the rapid growth of online consumption has supported the recovery of the retail and retail property markets, easing the pressure on retail rentals in the short term. Additionally, many shopping malls have actively responded to the new sales trend amid the pandemic, with some shopping malls making strategic adjustments, such as successively launching online services and strengthening refined operations.

However, it is expected that in the first half of the year, the retail property investment market could still gain much market attention to the community commercial property market. On the one hand, there will be a continued demand for livelihood products and services; on the other hand, costs of property management have stayed below that of high-quality shopping malls. The average net yield of premium shopping malls in first-tier cities could edge up slightly to a 4-5% range.