Index Research Institute: It is expected that the demand for shop rentals will be released by 2025, but short-term rents may continue to be under pressure.

In recent days, the China Real Estate Research Institute released the "2024 China Commercial Real Estate Market Annual Report." The report shows that in 2024, the retail commercial market showed a "rise and fall" trend, with a moderate recovery and stable rents in the first half of the year. In the second half of the year, due to the slowdown in consumer market recovery in the third quarter, some projects adjusted rents to stabilize the occupancy rate. Although the consumer market started to recover in the fourth quarter, the market was unable to rebound quickly in the short term. Rents for commercial properties in key cities in the second half of the year declined compared to the first half of the year. Looking ahead to 2025, with the government's policy efforts, it is expected that the consumer market will see some stimulation, leading to an increase in demand for commercial property rentals. However, commercial property rents may continue to be under pressure in the short term. According to the report, in 2024, the total investment in commercial and office buildings in the country was 1.104 trillion yuan, a year-on-year decrease of 12.1%, narrowing by 2.2 percentage points compared to 2023. The new construction area was 68.73 million square meters, a year-on-year decrease of 24.6%, widening by 4.7 percentage points compared to 2023. The leasing market saw a release in demand for commercial property rentals, but with more commercial streets facing pressure from shopping centers, vacancies increased and rents declined. In the second half of 2024, the average rent for commercial properties on 15 key commercial streets in major cities decreased by 0.51% compared to the first half of the year, with a total decrease of 0.42% for the year. Under the influence of various factors, in the second half of 2024, the average rent for commercial properties in 15 key commercial areas in major cities decreased by 0.31% compared to the first half of the year, with a total decrease of 0.06% for the year. Macroeconomic Environment 1. In 2024, the consumer market maintained a recovery trend, with a year-on-year growth of 3.5% in total retail sales of consumer goods 2. In 2024, the economy achieved a growth target of 5%, and in 2025, the emphasis will be on implementing more proactive macroeconomic policies to expand domestic demand in all aspects Incremental Market 1. Investment in commercial and office buildings: In 2024, the investment in commercial and office buildings decreased by 12.1%, and the new construction area decreased by 24.6% compared to the previous year.6%, a decrease of 3.5 percentage points compared to 2023, the proportion of commercial housing sales area increased from 8.1% in 2023 to 8.6%.Office buildings: In 2024, the national sales area of office buildings was 24.03 million square meters, a year-on-year decrease of 11.5%; in December, the sales area of office buildings was 3.22 million square meters, a year-on-year decrease of 25.7%. Commercial business premises: In 2024, the national sales area of commercial business premises was 59.86 million square meters, a year-on-year decrease of 5.9%; in December, the sales area of commercial business premises was 7.82 million square meters, a year-on-year decrease of 9.7%. Note: This section refers to office buildings + commercial business premises. The index explanation is consistent with the "China Real Estate Statistics Yearbook". 2. Commercial land: In 2024, the overall scale of supply and demand for commercial land in 300 cities remained stable, but still at a near 10-year low, with a large proportion of central state-owned enterprises involved in land acquisition. According to CRIC data, in 2024, commercial land in 300 cities released a total of 179 million square meters, a slight decrease of 0.8% year-on-year, with a transaction volume of 160 million square meters, a small increase of 4.4% year-on-year; the scale of land supply and demand is at a near 10-year low, with a large proportion of central state-owned enterprises involved in land acquisition. 3. New concentrated commercial opening: The pace of openings has slowed down, with corporate layouts focusing on core cities, and the proportion of openings in first and second-tier cities increasing compared to the previous year. According to CRIC monitoring, in 2024, a total of 370 centralized commercial properties with a total area of nearly 33 million square meters were newly opened, with a floor area of over 30,000 square meters, which is a slight slowdown compared to 2023. Due to the current commercial real estate market still needing to recover, corporate investment layouts are more focused on high-energy cities with developed economies, strong market vitality, and strong consumer demand. By city level, first and second-tier cities accounted for about 61% of newly opened projects, an increase from 2023. Existing market 1. Commercial stock: The commercial market in high-energy cities in the five major core city clusters is well developed, with stock size accounting for six-tenths of the national total. According to CRIC data, as of the end of 2024, there were over 6600 centralized commercial properties with an area of over 30,000 square meters nationally, with a total floor area of about 580 million square meters; the five major city clusters (Yangtze River Delta, Pearl River Delta, Beijing-Tianjin-Hebei, Chengdu-Chongqing, and Yangtze River Middle Reaches City Cluster) accounted for about 60%, with first and second-tier cities in the southeast coastal city clusters like the Yangtze River Delta and Pearl River Delta having more projects, while other city clusters have only a few core cities with well-developed commercial activities. Based on the urban population at the end of 2023, as of the end of 2024, the per capita centralized commercial area in China is about 0.6 square meters, indicating limited room for incremental development. The stock size in first-tier cities is already large, with a per capita centralized commercial area of about 1.1 square meters, indicating fierce competition in future stock projects; second-tier cities have a per capita centralized commercial area of about 0.9 square meters, approaching the level of first-tier cities, with some cities facing the risk of commercial oversupply; third and fourth-tier cities still have a small per capita centralized commercial area, about 0.4 square meters, with most of these cities having a small population base and insufficient consumer purchasing power, posing challenges for businesses. 2. Leasing market: The commercial shop and office leasing market is overall weak, with rental prices declining. (1) Shop leasing: In the second half of 2024, the rent for shops on commercial streets fell by 0.51% compared to the previous period, and the rent for shopping centers decreased by 0.31%. Commercial streets: In 2024, service consumption continued to grow rapidly, the tourism market warmed up, leading to increased foot traffic in some well-known commercial streets and cultural tourism districts, with shop iteration and rental demand release; however, many commercial streets are under pressure from shopping centers, leading to increased vacancy rates and declining rents. According to CRIC monitoring, in the second half of 2024, the average rent for shops on major commercial streets in 15 key cities fell by 0.51% compared to the first half of the year, with a cumulative decrease of 0.42% for the whole year. Shopping centers: In 2024, the overall consumer market showed signs of recovery, but domestic effective demand remains insufficient, leading some operators to proactively reduce rental prices to maintain project occupancy rates; at the same time, existing projects actively adjust and transform, introducing more experiential formats such as catering and entertainment, which also leads to a decline in rental levels. Comprehensive factors influenceIn the second half of 2024, the average rent for shops in the main commercial areas (shopping centers) of 15 key cities decreased by 0.31% compared to the first half of the year, with a cumulative decrease of 0.06% for the whole year.Office leasing: In the fourth quarter of 2024, the average rent of office buildings in major business districts in key cities decreased by 0.61% compared to the previous quarter, with a cumulative decrease of 1.85% for the whole year. Data source: China Real Estate Index System In 2024, the office market continued to be under pressure, with some cities seeing net absorption exceeding 2023, but overall still lagging behind pre-pandemic levels. In addition, compared to the increase in supply, demand for office leasing has been weak in the past two years, leading to an oversupply situation in some cities and a downward trend in office rents. In the fourth quarter of 2024, the average rent of office buildings in major business districts in key cities across the country was 4.62 yuan/square meter/day, a decrease of 0.61% compared to the previous quarter. Compared to the third quarter, the decline increased by 0.13 percentage points, with a cumulative decrease of 1.85% for the whole year, an increase of 1 percentage point compared to 2023. According to the data from CRIS, in the fourth quarter of 2024, the vacancy rate of Grade A office buildings in first-tier cities was relatively low, with Guangzhou having the lowest at 10.9%. Among the second-tier representative cities, the vacancy rates of Grade A office buildings in Hangzhou and Suzhou were 11.7% and 15.8% respectively, with a relatively balanced market supply and demand. In Chongqing, Tianjin, Qingdao, Wuhan, Changsha, and other cities, the vacancy rates of Grade A office buildings were relatively high, indicating significant vacancy pressure. In the first three quarters of 2024, CRIS monitored a total of 198 leasing cases in key cities, with the TMT, financial, and business services sectors accounting for over half of the cases. Specifically, the TMT sector accounted for approximately 23% of the cases, the financial sector accounted for 20%, and the business services sector accounted for 12%. The industries of medical health/biopharmaceuticals, education, and wholesale and retail accommodation had between 10-20 cases, accounting for 6%-10% each. Other industries accounted for 24% of the cases. Compared to the same period in 2023, the proportion of leasing cases involving TMT, medical health/biopharmaceuticals, and education companies increased, while the proportion of business services and construction and real estate industry leasing cases decreased. 3. Block Trading: In 2024, CRIS monitored 260 block trades, maintaining a certain level of activity, but the average transaction amount per deal decreased. Number of transactions: In 2024, CRIS monitored a total of 260 block trades, 96 more than the previous year. Of these, 137 transactions involved first-tier cities, accounting for 50.2%, with Shanghai and Beijing remaining the most active cities in terms of transactions. 70 transactions involved second-tier cities, accounting for 25.6%, with Chengdu, Hangzhou, Ningbo, Suzhou having relatively more transactions. 66 transactions involved third and fourth-tier cities, accounting for 24.2%, with more than 40 cities such as Quanzhou, Jiangmen, Zhenjiang, Rizhao. Transaction amount: In 2024, CRIS monitored a total of 133.8 billion yuan in completed block transactions with an average transaction amount of 5.8 billion yuan, a 20% decrease from the previous year. Among these, 85.6 billion yuan was transacted in first-tier cities, with Shanghai exceeding 500 billion yuan and Beijing exceeding 200 billion yuan. Second-tier city transactions totaled 29.6 billion yuan, with Chengdu, Shenyang, Suzhou, Hangzhou, Sanya, Chongqing, all exceeding 20 billion yuan. Third and fourth-tier city transactions amounted to 13.6 billion yuan, with Quanzhou and Jiangmen transactions exceeding 10 billion yuan. Note: The large-scale transactions included in this report exclude transactions below 100 million yuan, asset types do not include land, residential, or non-market-related transactions, and some portfolio transactions include assets distributed in different cities, leading to double-counting when counting transactions by city. Source: CRIS (click to view more). Website: https://www.cih-index.com/ Chart: Key City Block Trading Cases in 2024 (partial) Source: CRIS. Website: https://www.cih-index.com/ Chart: Distribution of Block Trading Amounts in Key Cities in 2024 (by property type) Source: CRIS. Website: https://www.cih-index.com/ Asset types: Commercial and office assets continue to be favored by investors. In terms of transaction volume, there were a total of 171 transactions targeting commercial real estate (office buildings, commercial properties, mixed-use developments, hotels), accounting for 66% of the total, with over 60 transactions involving commercial and office buildings. In terms of disclosed transaction amounts, office building transactions accounted for a relatively high amount, at 41.9 billion yuan, while commercial, mixed-use developments, and hotel transactions all exceeded 100 billion yuan, accounting for a total of 67%. Buyer characteristics: Domestic buyers still dominate the market, with large transactions from institutional investors. In 2024, based on disclosed buyer transactions, domestic enterprise buyers accounted for approximately 89%, with institutional investors (insurance funds, trust funds, etc.), local state-owned enterprises, domestic real estate companies (including developers, property management companies, and housing rental companies), being relatively active, accounting for nearly 60% of the total transactions; based on all transactions, institutional investors accounted for nearly 40% of the total transaction amount. Enterprise financing: The issuance of CMBS/CMBN and similar products by real estate-related enterprises in 2024 amounted to approximately 106.5 billion yuan, a decrease of 15.1% compared to the previous year.The issuance proportion of N and similar REITs (segmented by underlying assets)Data source: CNABS, Zhongzhi Research Institute integrated compilation In 2024, a total of 83 CMBS/CMBN and similar products issued by real estate-related companies were issued, a decrease of 6 from the previous year; the total issuance amount of products amounted to 106.5 billion yuan, a year-on-year decrease of 15.1%. Looking at the types of products, the issuance scale of CMBS/CMBN was 64.2 billion yuan, a year-on-year decrease of 33%; the issuance scale of similar REITs and property ABS holding products was 42.3 billion yuan, a year-on-year increase of 42.8%. Products with underlying assets in commercial real estate (office properties, consumer infrastructure, complexes, hotels, mixed-use properties) had an issuance amount of 94.9 billion yuan, accounting for 89%; among them, products with underlying assets of office properties and consumer infrastructure accounted for 27% each, a decrease of 14 percentage points and an increase of 6 percentage points respectively from 2023; products with underlying assets of complexes, hotels, and mixed-use properties accounted for approximately 35%, an increase of about 3 percentage points from 2023; products with underlying assets in industrial parks, rental housing, logistics warehouses, and other property types had issuance amounts below 5 billion yuan each, totaling 11%. Overall, commercial real estate projects can generate stable cash flow relying on the good operation of enterprises. The issuance of asset securitization products with commercial real estate projects as underlying assets has become one of the important financing channels for enterprises. However, in the overall adjustment period of the real estate market, the subscription willingness of CMBS/CMBN products is low, leading to a decrease in issuance volume. In addition, some leading commercial real estate companies choose to rationally use operating property loans as an effective supplement to financing channels, which may be another factor leading to the decrease in CMBS/CMBN issuance volume. (2) 7 consumer infrastructure public REITs listed in 2024, expanding corporate financing channels. In 2024, driven by policies, the public REITs market for infrastructure entered a normalization stage, with a rapid increase in incremental capacity, and market liquidity is expected to improve. As of December 2024, there were a total of 58 listed public REITs in China, with a total issuance scale exceeding 160 billion yuan. In terms of annual listings, there were 11, 13, and 5 products listed in 2021-2023 respectively; in 2024, 29 products were listed, including 7... In the first half of the year, the market has shown a mild recovery, with stable rental prices. In the second half of the year, some projects have adjusted their rental prices to maintain stable rental rates due to the slowing recovery of the consumption market in the third quarter. Although the consumption market has shown some recovery in the fourth quarter, it is difficult for the market to rebound quickly in the short term, leading to a slight decrease in rental prices for commercial properties in key cities in the second half of the year. Consumer demand has shifted, showing a preference for high-cost-effective products, focusing on spiritual satisfaction, and an increase in demand for cultural and entertainment consumption and "replacement with new" products. In this context, outlet malls, non-standard commercial formats, and other commercial formats have development opportunities.Looking ahead to 2025, in December 2024, the Central Economic Work Conference identified "expanding domestic demand" as the top priority of economic work in 2025, proposing to "implement a special action to boost consumption, promote income increases and burdens reductions for middle and low-income groups, enhance consumption capacity, willingness, and levels." "Intensify the implementation of 'new' policies, innovate diversified consumption scenes, expand service consumption, and promote the development of cultural tourism. Actively develop the first economy, ice and snow economy, silver economy" and other various tasks. With policy support, it is expected that the consumption market will be revitalized in 2025, and there may be a release of demand for shop leasing, but short-term shop rents may continue to be under pressure. Commercial operating enterprises need to continue to strengthen in terms of consumption content and services, ensuring stable operation of projects. In terms of consumption content, commercial operating enterprises can focus on new types of consumption such as smart homes, entertainment tourism, sports events, and domestic "trendy products," timely absorb high-quality brands, adjust the mix of formats, update consumption scenes to attract consumers; in terms of services, commercial operating enterprises can attract consumers through enriching member benefits, holding marketing activities, jointly formulating business strategies with merchants to stabilize turnover, and thus stabilize rental rates. 2. Office buildings: the market continues to be in a bottoming-out consolidation phase, demand may continue to mildly recover In 2024, the overall operation of the macro economy remained stable, but domestic effective demand was still inadequate, and some tenant enterprises were still under pressure. The office building market in key cities is still in the bottoming-out phase. The phenomenon of property owners stabilizing rental rates by "price for quantity" is more pronounced, office leasing demand remains weak, and office rents in key cities continue to decline. Looking ahead to 2025, the office building market may continue the weak trend of 2024, still in a bottoming-out consolidation phase, with demand possibly mildly recovering to a certain extent, but rents may continue to be under pressure in the short term. For property owners, stabilizing the rental rate is the top priority of 2025. Therefore, office operating enterprises should focus on creating an industrial ecosystem and upgrading service systems, maintaining the stability of cornerstone tenants, attracting upstream and downstream enterprises in the industry chain to settle in, and maintaining the project's healthy operation.