COVID-19 – Green shoots in China’s office leasing market

March 30, 2020 / By  

The outbreak of COVID-19 and its impact on China’s commercial office market has become apparent within weeks, as slowdown of business activities has softened demand for office leasing across the country. Fortunately, a few select industries that provide much-needed services will remain resilient and will continue to propel the office leasing market once the outbreak is contained. We have identified three industries that are likely to remain resilient:

  • Insurance – The sudden outbreak has raised awareness for both individuals and firms to consider broader insurance coverage to better prepare for unexpected events. An increase in demand for their product should prompt insurers to upgrade and expand their office space. Furthermore, the broader governmental push to accelerate the development of new regulatory and accounting standards in the insurance industry is expected to usher in a new period of development.
  • Online entertainment – Extended downtime has generated new momentum for mobile gaming, which has grown at a compound annual growth rate of 24% in the past five years, and video applications. This will translate to office expansion demand as new users continue their newly acquired habits after the virus is contained.
  • Healthcare – Healthcare has maintained steady growth in China, but from a global perspective, healthcare spending still falls short, equating to 4% of GDP in China compared to approximately 8.8% globally. Demand for services, pharmaceuticals and medical equipment is likely to accelerate as consumption expenditure in the medical field continues to increase even after the outbreak is contained.

Ironically, the virus outbreak has given a boost to proptech. Landlords have responded by implementing new health-related specifications in their properties, such as thermal imaging cameras, automatic elevators, and digital building control systems. Even low-tech responses to this outbreak, such as healthcare stations with hand sanitizer, public area sterilization protocols, and improved air ventilation and filtration will stay in place beyond the initial investment. Occupiers have also become better equipped by investing in online solutions to encourage remote working arrangements. Flex-space is likely to re-enter the spotlight once the virus is contained as watchful occupiers re-evaluate their workplace strategy.

Over the long-term, ongoing financial reforms, the explosive growth of the (TMT) sector, and the coordinated development of regional clusters, such as Beijing-Tianjin-Hebei and the Pearl and Yangtze River Deltas, will provide new opportunities for market expansion. With effective policies and growing demand from dynamic sectors, we have reasons to be optimistic in the years ahead.

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