The COVID-19 outbreak is an unprecedented event in China. Its effect has been felt across geographies, society, the economy and the property market throughout the country. The outbreak is expected to impact China’s real estate market on many levels. In this article, we look at some of the key trends that investors, developers and occupiers should be aware of in 2020 and beyond.
The Office Sector
Remote working in China
After the experience of remote working during the outbreak period, we expect landlords and occupiers in China to both reconsider this way of working and to factor in its impact on office floor plans and workplace strategy.
Office landlords might consider incorporating more co-working spaces and communal areas into their buildings, while office occupiers may consider having more unassigned hot desks, team collaboration spaces and meeting rooms in the workspace.
Hardware aside, to successfully execute a remote working practice, companies in China will have to bear in mind many factors, including:
- Time management
- Task assignment management
- Task progress reporting (timely and effective feedback)
- Team collaboration
- Regular meetings
Occupiers to target in China
Given the COVID-19 outbreak (and its positive commercial effect on online tech companies, companies involved in healthcare, health insurance companies and retailers which have a strong online presence), the general policy direction and the current and expected macro-economic dynamics, we believe there are four business sectors which prime office landlords should be aware of as likely to positively impact office demand in China over the coming year:
- Online or multi-channel retail
Wellness and well-being in China
Office landlords in China that provide timely and effective health and safety protection measures for the tenants and users of their buildings will be in a better position to gain the trust of their existing and potential occupiers. By ensuring their buildings are properly equipped with thermal imaging, air conditioning filtration, and sterilisation systems, wellness and well-being levels will be elevated. This, in turn will reassure the occupiers, improve tenant retention and attraction rates and strengthen the business viability of the buildings.
The Retail Sector
Online shopping in China
In the short term, the drop in footfall traffic will dent the retail sales numbers in China. However, we expect retail sales volume growth rates to return to pre-outbreak levels in the medium to long term. What’s more, we will see an acceleration and a deeper integration of offline/online omnichannel retail services in China, given the impact of the outbreak and the recognised importance of these platforms by retailers for driving retail product and service sales.
Retail digitisation/data intelligence in China
Digitisation and data intelligence have become important tools in China’s retail sector, but the COVID-19 outbreak has proved to a number of retailers that these tools can be further optimised. Ahead, through best-practice use of digitisation and data intelligence, we expect many retailers to place a greater emphasis on:
- Customer relationship management
- In-depth data mining
- Product personalisation
- Intelligent supply chain management
Together these innovations will improve the customer shopping experience and, ultimately, retail sales performance.
Retail marketing models to change in China
Post COVID-19, we expect more retailers and shopping centres in China to change their existing marketing models and adapt them to utilise live online broadcast channels to not only market their products and services but also improve the overall shopping experience for their customers.
The Industrial Sector
Industry 4.0 in China
In the mid- to long-term, we expect many manufacturers operating in China to adopt Industry 4.0 operating procedures to mitigate production and distribution shortfalls should an event like the COVID-19 outbreak happen again. With Industry 4.0 fully integrated, manufacturers will then be able to operate within a smart factory environment. They will also be connected to an association of manufacturing resources and services that support the whole life-cycle of manufacturing. This alliance that is shared between companies across geographies will allow manufacturers to garner from the Cloud the components and parts they require for a particular product, enabling them to diversify their sources without relying on a single manufacturing base.
Logistics space demand in China
The COVID-19 outbreak will have exposed more people in China to the idea of online shopping and as a result, eCommerce will play a larger role in the country’s economy going forward. Greater eCommerce business activity will create further demand for premium warehouse space in China. In turn, we expect real estate investors and developers to focus not only on core cities and regions but also to continually advance their presence in provincial capitals and transportation hub cities across the country.
Demand for rack space in China
At present, there is continuous construction and development of data centres in China. Spurred by the impact of the COVID-19 outbreak on the internet activity rate in China, as well as the accelerated development of Cloud Computing, Big Data, the Internet of Things and Artificial Intelligence in the country in the near future, there will be a greater need for data and information processing racks in data centres. According to IDC China, the data centre market in China is expected to reach a value in the order of RMB 200 billion plus by the end of 2020.
The Hospitality Sector
Hotel service quality and cleanliness in China
The outbreak has presented complex and difficult challenges for the hotel industry in China. As tourists begin to start travelling again and as the hotel industry begins to recover, hotels in China will have to step up their service quality and cleanliness in order to win the trust of guests, and in turn, boost their occupancy rates.
The Residential Sector
Home office/study areas in residential properties in China
It is still unclear whether working from home will become a popular choice in China. However, there will be many potential buyers of residential properties in the near future; and for those who have lived through the experience of working from home during the COVID-19 outbreak, they might consider purchasing a residential property which has a dedicated home office/study area over one that does not. With this expected demand, many residential investors and developers may well have to consider adding a separate home office/study area into their design plans in the future.
Intelligent parcel drop boxes in residential properties in China
Once the COVID-19 outbreak is over, the usefulness of intelligent parcel drop boxes for large scale residential communities across China will not be lost on residential investors, developers, residential property management companies and residents alike. We expect more of these types of smart delivery systems to be installed in residential communities in the future.
Real Estate Investment
First tier cities in China to remain important
We expect the downside risk from the COVID-19 outbreak to fade in the mid- to longer term. In the short term, given some owners might be cash-strapped, there may well be some properties put on the block at bargain discounts, which will appeal to many real estate investors. What’s more, foreign ownership limits on fund management firms will be lifted nationwide starting 1 April this year, which will boost real estate investment activity in China going forward.