Why China’s commercial property market’s resilience amid the coronavirus pandemic shouldn’t be taken at face value

Transaction volumes in China’s commercial property market doubled year on year in the second quarter, raising questions about a hot investment market that shows no signs of adjusting to the severity of the Covid-19 shock

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A few people are seen in a shopping mall in the Lujiazui financial district in Shanghai on February 5. Footfall at high-end shopping centres in Chengdu, Guangzhou and Shanghai had returned to, or exceeded, pre-pandemic levels by June, according to a study. Photo: Reuters

Published: 9:45am, 25 Aug 2020Updated: 9:55am, 25 Aug 2020

Last month, footfall at Britain’s shopping centres was nearly 50 per cent down on an annual basis, data from the British Retail Consortium shows. This is not surprising given that July was the first full month in which all retail outlets across the UK were allowed to reopen following a protracted lockdown.

Yet, it shows the extent to which Western countries are lagging behind most of their Asian peers in their efforts to contain the spread of Covid-19 and reopen their economies.

In China, which is benefiting from being “first in, first out” when dealing with the coronavirus, shopping centres across the country had already reopened and resumed close-to-full operations by April. In Shanghai, half of employees working in prime Grade A office buildings had returned to their workplaces by the end of March, in stark contrast to London, where nearly 70 per cent are still working from home, research from Morgan Stanley shows.

Parts of China’s commercial property market have rebounded faster, and proved more resilient, than many had anticipated when lockdowns and travel bans across the country began to be lifted in early March. Net absorption of office space in tier one cities turned positive in the second quarter. By June, footfall at high-end shopping centres in Chengdu, Guangzhou and Shanghai had returned to, or exceeded, pre-pandemic levels, data from Savills shows.

Investors, who are drawn to the long-term growth potential of China’s real estate market, continue to favour the world’s second-largest economy over other markets in Asia, so much so that transaction volumes in the second quarter doubled year on year, according to preliminary data from property consultancy RCA.

While this bucks the trend of steep declines in investment activity across the Asia-Pacific region, it raises troubling questions about an investment market that was already running hot before the pandemic struck and shows scant sign of adjusting to the severity of the shock.