China’s reopening brings bounce to Apac commercial property in Year of the Rabbit

CHINA’S decision to reverse its zero-Covid policies after close to three years cannot come at a better time for the global economy, which is reeling on the back of the US Federal Reserve’s fastest hiking cycle in decades.

China’s economic influence, particularly in the Asia-Pacific, remains outsized and there will be significant multiplier effects from the reopening of the country’s borders.

China’s gross domestic product growth in 2022 slumped as bouts of extended lockdowns exerted an economic toll. The pivot from its zero-tolerance stance sets the stage for an economic rebound. The revival of consumption on the mainland, which has shaped the global economy, will accelerate the region’s post-pandemic recovery.

With China’s economy still having some way to go towards retracing pre-pandemic trends, the impact from the country’s re-opening at this stage will still largely emanate from the restoration of people’s mobility, rather than capital.

Still, it will lead to a higher volume of economic activities in both China and the rest of the world, thus generating demand for commercial space.

The Rabbit in Chinese astrology symbolises patience and hope – the impact might not be immediate, but it will materialise, albeit with a lag. China’s unwinding of its pandemic restrictions is the last missing jigsaw piece and possibly the largest factor in restoring economic prospects, globally and regionally, back to the pre-pandemic trajectory.

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Hotels poised for revival

As an indication of pent-up demand, searches for international flights and accommodation immediately hit a three-year high on Trip.com, after China announced it would no longer subject inbound travellers to quarantine starting Jan 8, including residents returning from abroad. Bookings for overseas travel during the upcoming Lunar New Year holidays in 2023 soared, according to the travel site.

In the first few days after borders reopened, more mainland tourists were observed in Hong Kong, with some in revenge spending mode. The retail market can be expected to bottom after three tough years with the progressive return of mainland visitors, which accounted for 70-75 per cent of total visitor arrivals to Hong Kong before the pandemic.

As scores of Chinese venture overseas for the first time in three years, hotels will be first in line to benefit. Regional destinations will no doubt top the list, but countries in South-east Asia, which have not imposed restrictions on Chinese travellers, will likely be the earliest beneficiaries.

In 2019, 32.3 million Chinese visited the region, accounting for over a fifth of tourist arrivals. As airlines and hospitality infrastructure ramp up capacity, improvements are expected to turn noticeable in the latter half of 2023.

Many Asian countries are anticipating Chinese travellers, especially tourism-dependent economies like Thailand which had hosted the lion’s share of Chinese tourists to South-east Asia. Goldman Sachs estimated as much as a 3 per cent boost to GDP growth as Chinese travellers beat a return to the kingdom. Thai authorities expect 5 million Chinese visitors in 2023, still some way off from the near 11 million that visited before the pandemic, but the gradual revival will likely pick up pace in the following months.

Smoother trade flows boost logistics

While China’s reopening would be less significant a boost for logistics, which has benefitted from the accelerated adoption of e-commerce, the unfurling of supply chain disruptions will still be positive for the region’s manufacturing hubs.

China is Vietnam’s largest market, and the further easing of Covid measures will lubricate trade flows between the neighbours. Both countries are also intricately linked to the global supply chain, where source materials from China supply Vietnam’s factories for goods that are assembled and re-exported worldwide as final products.

An effective supply chain can induce demand for such goods since it is now easier to obtain these goods, thereby leading to higher need for industrial and logistics spaces for manufacture, storage and delivery.

Office demand in gateway markets to firm

Occupiers in China have remained cautious as leasing activity remained subdued in the last quarter of 2022, resulting in negative net absorption captured for some cities and rising vacancy rates on the back of new office supply. However, we can anticipate a long-awaited recovery as the situation in Greater China stabilises.

A more vibrant occupier market environment can be anticipated in Hong Kong as both MNCs and mainland enterprises will hope to reconnect via the city, while higher mobility will alleviate tight labour supply. While prime rents are unlikely to rise amid ample supply, demand for office in Hong Kong is expected to strengthen as landlords turn more active in filling up vacancies.

Regionally, the Singapore office market can also be expected to firm up. As many as 500 Chinese companies as of November 2022 have quietly re-domiciled or registered in Singapore over the past 12 months in a bid to hedge against rising geopolitical risk. The motive was to future-proof their businesses as the West steps up its scrutiny of corporates from the Chinese mainland.

With the borders open, the process of setting up base here in Singapore would be much easier, which is likely to aid demand for office space in the city-state, given the island’s safe haven status.

The writer is head of research, Asia Pacific, at Knight Frank