China’s office and industrial property market will suffer from weaker leasing demand as a result of the escalating trade tensions between Washington and Beijing, as multinationals review their China strategy and manufacturers speed up factory relocations to countries such as Vietnam, according to market watchers. “From the real estate point of view, many decisions in the second half of the year and next year will be delayed in both investment and leasing markets as corporates are waiting out the political storm,” said David Ji, director and head of research and consultancy at Knight Frank Greater China. Other industry watchers agreed that foreign companies have adopted a cautious approach amid heightened trade tensions between China and the US. “It is possible that some foreign companies may pause on their occupancy decisions until the impact of the trade war is clear. However, a majority of demand for commercial real estate properties in China, especially in first-tier cities, comes from domestic instead of foreign companies,” said Elysia Tse, head of research and strategy, Asia-Pacific LaSalle Investment Management. “While it’s safe to say that there will be a short-term slowdown in corporate profits, the occupier and tenant demand in China’s first-tier cities, which is primarily driven by local supply, will remain nuanced,” said Tse. “Over the long term, China’s large and strong domestic demand base and the relatively high growth prospect by global standards are expected to continue to attract foreign companies with a long-term business objective in China.” CBRE, however, said US companies operating in sectors subject to Chinese tariffs account for just 1.5 per cent of total leasing volume in the office sector, meaning that the impact on the office market remains minimal. While the office demand from Chinese trading companies could also be negatively affected, such firms represent a very small percentage of leasing volume. “The office market in China remains fundamentally robust nationwide, with the direct impact being controllable and long-term impact being offset by other measures introduced by the government,” said Henry Chin, head of research at CBRE Asia-Pacific In fact, the office sector is undergoing strong growth thanks to the boom in tech and multimedia companies, Ji said. However, the industrial property market in China was at greater risk from a downturn related to the trade war, according to Chin. “Industrial manufacturing occupiers in China are the most vulnerable and some are actively exploring alternative locations if the trade dispute ramps up further,” Chin said. Hasbro, the American toy and board game maker, which sources 70 per cent of its products from China, said it will relocate production to other parts of the world in response to the 25 per cent tariff the Trump administration imposed on selected Chinese products on July 6. “Many manufacturers have begun the relocation process of their production lines from the mainland due to rising costs and tougher regulations,” said Clara Chan Yuen-shan, president of the Hong Kong Young Industrialists Council and chief executive of Lee Kee Holdings. “The outbreak of the US-China trade war escalates the wave of relocations.” Vietnam, which is widely considered China's manufacturing rival, is drawing attention from property investors looking for alternative investment sites. Property consultancy Ashton Hawks said client enquiries regarding real estate in Vietnam have picked up in recent months. “We even have better business after the trade war [began]. People are looking at Vietnam because they see opportunities there,” said Cubie Chan, a director at Ashton Hawks. According to Ian Chan, chief executive of technology component maker Kayamatics, many manufacturers have discussed moving their production lines out of mainland China in recent years but few have taken action. He said the growing trade tension serves as a catalyst to consider backup production facilities in Malaysia or Vietnam.