Under the dual effect of weak demand and the concentration of a large amount of supply into the market, the vacancy rate of office buildings in many places has increased since the beginning of this year.

According to the latest statistics from Jones Lang LaSalle, as of the third quarter, the vacancy rate of the Grade A office market in Beijing was 11.1%, 21.6% in Shanghai, 22.3% in Guangzhou and 23.4% in Shenzhen. The vacancy rate of office buildings in second-tier cities such as Wuhan, Shenyang, Qingdao and Tianjin exceeds 30%. In addition, in the next three years, cities will usher in a large amount of new supply.

Is there a surplus of office space in core cities?

Zhang Ying, chief strategy officer of Jones Lang LaSalle China, said in a recent interview with a reporter from China News Service that China's office assets, as the most mature investment target, are still irreplaceable. As the market enters a new development cycle, seizing new opportunities and reshaping core competitiveness will be the focus of all participants in the market.

From a demand perspective, even Beijing and Shanghai, where the office market is the most mature, still have a lot of potential demand that has yet to be stimulated. In particular, the per capita Grade A office space in the tertiary sector shows that Beijing and Shanghai are still far behind the level of the world's major mature markets such as New York, and China's office market still has strong demand potential.

An excerpt from the interview is as follows:

The country is a through train: Commercial real estate, especially office tenant composition, can be seen as a barometer of the macro economy, what new changes have you observed in the market this year?

Zhang Ying: According to Jones Lang LaSalle's statistics on the office market in key cities across the country in the third quarter, the demand side as a whole is still in the recovery channel, but the different incremental demand has brought about the differentiation of various industries in different cities.

The financial sector dominates the office leasing market in most major cities across the country, with Beijing and Shenzhen accounting for 2023% and 30% of office transactions in the first three quarters of 40. Tenants such as banks, insurance companies, and fund companies have maintained relatively stable market demand for a long time. Among them, the relocation and integration needs of domestic insurance companies in the third quarter were particularly significant.

In some leading technology center cities such as Shenzhen, Hangzhou, and Wuhan, the technology Internet showed a decline in leasing demand, but Guangzhou still recorded 40% of leasing transactions in the first three quarters. In addition, sub-sectors such as e-commerce and new media in the industry have also released active demand for small and medium-sized areas in cities such as Qingdao, Foshan, Nanchang, Changchun, Shijiazhuang, Harbin and Urumqi.

Notably, there has been significant incremental demand for office space from the life sciences and energy sectors in some major cities. In the third quarter of this year, 20% of Nanjing's demand came from the pharmaceutical and life sciences industry, of which medical services contributed a large area of transactions. Xi'an's energy companies remain one of the city's main pillars of demand. With the acceleration of the layout of the new energy industry in Shaanxi Province, the leasing demand of new energy enterprises has gradually caught up with the demand of traditional energy enterprises led by coal and oil, and occupies a dominant position in the new demand.

Overall, the office market in China's major cities is still in a transitional period of recovery, and the rate of vacant area reduction is slowing down, and most cities need to face a situation where "stock" and "increment" coexist. At present, most enterprises adopt cost-saving leasing strategies, and most tenants with relocation needs still take a wait-and-see attitude, and the overall market rent continues to be under pressure, and the market is exploring to find a development path.

From the perspective of the property investment market, what is the trend this year?

Zhang Ying: In 2023, the bulk transaction volume of commercial real estate in China will weaken, and investors will generally be affected by global economic uncertainty and interest rate fluctuations when considering decisions. At present, the bid-ask spread of most transactions is narrowing, and sellers are willing to lower the price to facilitate the transaction. Factors such as the repricing of assets and the narrowing of bid-ask spreads are expected to lead to a recovery in overall investment market activity in the medium term.

According to Jones Lang LaSalle's previous data, from the perspective of changes in the types of investors, before 2008, overseas private equity funds were the main force in China's property investment market. Since 2008, new entrants have entered the property investment market, including insurance companies, domestic private equity funds, private enterprises, sovereign and pension funds, and overseas REITs (real estate trust investment funds). From 2022 to the present, many RMB private equity funds and end-users have participated in the foreclosure.

In terms of the number of transactions, in the past three years, the proportion of office properties nationwide has decreased from 3% in 2020 to 49%. Industrial parks and logistics have increased from 32% in 2020 to 33% year by year. In addition, the types of investment properties that have increased their proportion year by year also include hotels, which have seen a significant recovery in hotel investment after the epidemic, with transactions doubling; The growth momentum of long-term rental apartments is more obvious, and the proportion of apartments has increased significantly.

Which types of Chinese commercial real estate assets are currently attractive to foreign companies?

Zhang Ying: As the most mature investment target, the value of China's office assets is still irreplaceable. From the perspective of total demand in the country, even in Beijing and Shanghai, where the office market is the most mature, there are still a large number of potential demand in the office market that has not yet been stimulated.

As can be seen from the per capita Grade A office space in the tertiary industry, Beijing and Shanghai are still far behind the level of the world's major mature markets such as New York, and China's office market still has strong demand potential.

2023 is the first year for consumer infrastructure to be included in the scope of China's REITs issueable assets, and the news that department stores and shopping malls can issue REITs is not only a major positive for the retail industry, but also a shot in the arm for the recovery of confidence in the commercial real estate market.

From the perspective of other property types, logistics, long-term rental apartments and property assets with the possibility of apartment renovation are still receiving mainstream attention, especially the investment in logistics and long-term rental apartment assets has shown strong resilience.

The volatility of the global environment has led investors to adjust their investment strategies and risk tolerance, while the growth potential of China's economy has effectively prompted foreign investors to actively allocate capital in China's real estate market and maintain a high focus on emerging and alternative assets.

China is a through train: In JLL's view, what has been the biggest change in China's economy in the past 5-10 years? Has the company adjusted its business structure and layout accordingly?

Zhang Ying: First, the process of China's urbanization has changed. From the traditional mode of large-scale demolition and large-scale construction, it has been transformed into the self-growth and iterative development of the urban organism with "people" as the core, and through the introduction of new industries, new functions and new business formats, the functional carriers that meet the requirements of modern life quality have been optimized to improve the utilization efficiency of existing resources.

Urban renewal was included in the 2021th Five-Year Plan, and at the end of 21, the Ministry of Housing and Urban-Rural Development decided to launch the first batch of urban renewal pilot projects in <> cities (districts).

Second, China's commercial real estate market is more diversified. From the original single office building, it has gradually covered warehousing and logistics, long-term rental apartments, pension real estate, etc., to a more mature market. In the commercial real estate market, the government has changed from a leader to a promoter, inviting more professional institutions to participate in market decision-making.

In both cases, JLL can be deeply involved, which is a new development opportunity.

China is a through train: Looking to the future, what will JLL focus on in China?

Ying Zhang: One focus is on the PropTech space.

At present, such as telecommuting, public health and "contactless" services, have begun to disrupt traditional business models and force industry innovation.

According to Jones Lang LaSalle, the number of global proptech companies has reached about 8000,2010, more than three times that of 3, and in the first half of 2021 alone, the proptech industry attracted a record $97.2010 billion in investment. Since 160, China has raised more than US$<> billion in proptech funding, making it the world's second-largest proptech market.

In 2019, JLL joined forces with industry leaders to launch the first realestate technology innovation consortium, UrbanLab, to nurture and develop promising technology companies.

Another focus is on sustainability. According to statistics, 40% of the world's carbon emissions come from construction-related industries. As a major carbon emitter, buildings shoulder a major mission in the process of "dual carbon".

With China's 2030 carbon peak goal approaching, China's real estate industry has entered a new stage of dual carbon management, with energy management, carbon operation and carbon neutrality becoming mandatory courses for building owners and operators, rather than optional. Jones Lang LaSalle has committed to achieving net-zero carbon emissions by 2040, which includes all spaces managed on behalf of customers. (Text/Pang Wuji)