China's commercial real estate market attracts bargain hunters as prices plummet

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Colliers International Group Inc., which says prime office values tumbled about 30% from their pre-Covid high in some of the nation’s major cities. “Given how deep prices have corrected, there are lots of bargain-hunting opportunities," said Jimmy Gu, a deputy managing director and co-head of capital markets and investment services at Colliers. “It all depends on buyers’ outlook for the economy." Grade-A offices in Shanghai and Beijing used to be sought after by global real estate funds, making them more attractive than those in New York and London.

Even in recent years, they largely avoided the challenges crushing global peers, such as rising interest rates and hybrid work arrangements. But institutional investors have been selling such assets as prospects for the Chinese economy and oversupply weigh on the sector. That’s added to the gloom in the nation’s real estate industry, which has been grappling with an unprecedented slowdown in its residential market since 2021.

Prime offices in Beijing and Shanghai, China’s two biggest cities, traded at capitalization rates of about 5% last quarter, the highest in more than a decade, Colliers data show. A rise in the cap rate, which is a property’s net income divided by the transaction price, usually signals a decline in real estate values. “The investment yield increase became especially evident last year," said Gu.

“We’ve come to a buyer’s market." Part of the drag on prices has been caused by global real estate funds that faced pressure to exit their investments after Covid delayed the process, Gu said. Falling rents and a global trend to pare exposure to office assets also contributed. In Shanghai, office rents shrank to the lowest in almost a decade last quarter, and they