Year of vitality seen for real estate sector

Despite headwinds from a complex international environment and internal structural transformation, China's new quality productive forces and improved consumption are expected to inject vitality into the real estate sector, making 2025 a year of accumulating strength and generating energy, according to industry reports.

"Despite many challenges, the Chinese real estate market will be driven forward by effective domestic demand, consumption upgrades and technological progress," said Xie Chen, head of research at CBRE China, a commercial real estate services and investment firm.

"The incremental demand potential contained within new quality productive forces and consumption recovery are key to striking a balance between supply and demand," Xie said, citing a report by CBRE on the 2025 China real estate market outlook published on Feb 25.

According to the report, the residential market is projected to see an evident narrowing in housing sales decline, and first-tier cities are believed to take the lead in market stabilization.

The latest home price index, tracked by the China Index Academy, supports this projection.

In February, new homes were traded at an average price of 16,711 yuan ($2,292) per square meter across the 100 major Chinese cities, up 0.11 percent on a monthly basis. The average price of new homes rose 2.73 percent year-on-year during the same period, according to analysis by the China Index Academy.

In the secondary market, prices of pre-owned homes traded in the 100 major cities averaged 14,071 yuan per sq m, down 0.42 percent month-on-month, the seventh month in a row of narrowing declines, it added.

As leasing supply and demand are still under progressive recovery, the CBRE report saw growing positive signals in the commercial real estate market, among which incremental office demand driven by consumption and new quality productive forces takes the lead.

Specifically, office demand in major Chinese cities is expected to improve slightly in 2025, with net absorption likely to increase by about 10 percent. Consumption and new quality productive forces will continue to serve as the two major forces in driving demand for office expansion, said the report.

Likewise, a report on the office market in 40 Chinese cities published by JLL on Feb 25 also took note of the emerging structural opportunities from new quality productive forces.

Although the office market in 40 major Chinese cities experienced a retreat in supply growth, rental rates bottomed out at an accelerated pace amid differentiated demand throughout 2024, and the positive signals in demand should be heeded, as these will create a growth momentum that may lead to a gradual recovery, the report said.

In the meantime, despite the actual scale of incremental demand brought about by new office demand, new quality productive forces have already unleashed structural opportunities in vertical segments, the JLL report stated.

For example, there was rising demand from enterprises engaged in technological sectors represented by gaming and artificial intelligence last year in Beijing. Additionally, driven by new industries including AI and big data, nearly 40 percent of the office leasing transactions space was contributed by enterprises involved in internet technology industries in Shenzhen, Guangdong province throughout 2024.

Warehouse demand will remain stable as domestic consumption recovers while external demand slows. US tariffs will only have limited impact on cross-border e-commerce leasing demand. Tenants' focus on price and quality will continue to impact rents and uptake in first-tier city clusters, said the CBRE report.

The Chinese government's measures to boost consumption nationwide are expected to push up retail sales by 5 percent in 2025, and retailers are expected to expand business buoyed by recovering market sentiment and quality consumption. It is projected that vacancy rates will decline after supply tops out this year.

Commercial property transactions are expected to improve in 2025 as asset prices are becoming more attractive and interest rates are further lowered, the report added.