The View | China’s property crisis: how the commercial sector is bucking the trend

Dire warnings about China’s ailing economy abound. The biggest concern is the distress and loss of confidence in the property sector. Last week, Goldman Sachs published a report looking at the impact of the crisis on the broader economy and financial markets.

One of the most troubling findings was the severity of the hit to growth. Goldman Sachs expects property-related activity to shave 1.5 percentage points off growth this year and continue to be a drag in the coming years. That’s after it contributed as much as three percentage points to China’s annual economic output 10 to 15 years ago.

It is striking, however, that much of the research and commentary on Chinese real estate disregards the commercial sector. While the residential market dwarfs its commercial counterpart and is one of the biggest vulnerabilities in the global economy, the commercial market was the second-largest in the world last year, according to data from MSCI. It is also becoming more institutionalised as the development of a publicly traded real estate investment trust (Reit) regime gains momentum.

Moreover, while the housing market is contracting, the commercial property sector continues to grow and is performing strongly. China’s hotel industry, which has benefited hugely from the strength of domestic tourism, is a case in point.

With air traffic within the country having surged to 116 per cent of 2019 levels, according to data from JPMorgan, average hotel occupancy rates in Beijing and Shanghai last month were 15 to 20 per cent higher than in July 2019, data from STR shows.