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China office, retail sectors may slow down: Knight Frank

AS THE Covid-19 outbreak continues to spread, there is little doubt that China's commercial real estate markets will be impacted. Knight Frank assesses the effect on the different sectors.

Office market

Due to the uncertainties raised by the epidemic, some developers may consider delaying office projects currently under development, resulting in a temporary reduction in new office supply. On the demand side, market activities will likely slow down, as businesses affected by the epidemic suspend expansion or relocation plans.

Industries such as online education, online gaming and entertainment, biomedical, pharmaceutical and the healthcare sector, however, are expected to be positively affected by the epidemic, with a likely increase in demand for office expansions or relocations. Overall, office leasing activities are projected to decrease in the short run, as rents face downward pressure.

Retail market

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The epidemic has had significant impact on large retail projects, particularly on shopping malls and departmental stores. Some landlords have begun taking measures to reduce or waive rents in view of the current difficult situation, while government and financial institutions are expected to introduce a series of tax, rent and financial support.

Some retailers are also expanding online sales activities to balance the impact of the epidemic on their brick and mortar stores.

Interestingly, fresh food retailers have not been as affected by the epidemic, with their online business expected to grow.

Knight Frank expects shopping malls to improve their ventilation systems, minimise confined spaces in buildings, enhance disinfection and sterilisation of public areas, and engage in regular checks on the temperatures of incoming shoppers, to heighten shoppers' comfort when going into malls.

Some retailers may also request for more favourable leasing terms, which may in turn place downward pressure on rents.

Over the long term, retailers are confident that the strong consumption power of the Chinese market will continue to grow. Additionally, retailers are expected to continue with expansion plans in China, even after the epidemic is under control.

Industrial market

The epidemic is likely to have lesser impact on the industrial property market, even as online sales volume has surged since, leading to an increase in demand for logistics and warehousing.

In the medium to long term, e-commerce companies, third-party logistics providers and manufacturers will still be the main sources of demand for industrial property, and it is expected that rental levels of industrial real estate will hold steady in future.

  • The writer is senior director, strategic advisory, Knight Frank China

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