The provincial and city-level governments, except first-tier cities, were allowed to lift home purchase restrictions in 4Q 2014. General investment sentiment will improve in 2015 following the policy relaxation, although price corrections will be inevitable in many cities facing oversupply. Despite this, average sales prices should grow throughout 2015. Prices in the luxury market, insulated from HPRs, will remain stable.
Demand for office space was stable nationwide despite a general economic slowdown. First-tier cities saw a decrease in vacancy rates and Beijing posted China’s highest office rents at RMB310 psm/month. In second-tier cities, oversupply led to higher vacancy rates. Overall, landlords avoided large rental increases and rental growth began to moderate. Shanghai, Guangzhou and Chengdu will receive a large stock of new supply in 2015, boosting vacancy rates and slowing rental growth.
The fundamentals of the retail market remained solid, though e-commerce posed a strong challenge. Many landlords countered by introducing more “experience”-based trades (F&B, lifestyle). First-tier cities performed well, with vacancy rates settling around 10 per cent and asset performance stable. Shanghai posted the highest average rent at RMB1,195 psm/month. In second-tier cities, vacancy dipped to 8 per cent though a large wave of new supply will lead this figure up in 2015 — more than 70 per cent of next year’s new supply is in second-tier cities.
China’s logistics market grew rapidly, with total warehouse space up 40 per cent y-o-y. This was driven by strong consumer demand and e-commerce, though acquiring industrial land became ever more difficult, particularly in first-tier cities. Still, two million sqm of Grade A warehouse supply is expected for 2015. A national reduction in land usage terms (in Shanghai, from 50-year max. to 20 years) and tighter government oversight on industrial land use will affect the market.
Policy easing towards outbound investment spurred high activity in 2014. Numerous Chinese companies closed transactions for residential or commercial development, from London to Tokyo to New York. This will increase in 2015, as investors diversify the size of deals and product categories. Ping An Insurance, China Life and developers Greenland and Wanda will continue to be major investors in overseas projects.