The confidence game
November 29, 2012 / By
Back in September I wrote 2 blog posts about the slowdown and stabilisation of China’s economic growth and how companies were reacting to it. In the last 3 months we have seen more evidence that growth has in fact stabilised with indicators like retail sales, industrial production, electricity production, property transactions, export volumes and infrastructure investment either turning upward, or at least, not getting worse.
While I remain confident that policy makers in China have done enough to halt the economic slowdown, and many economists have been revising their 2013 growth forecasts upward, this view has not yet become the consensus among business leaders. I am still hearing clients and colleagues express concern about economic risks and the implications for 2013. As I wrote last time, this has caused companies to delay decision making until they either can’t wait any longer or until they feel more confident in the outlook for China.
I think it will still take another few months for the ‘stabilisation’ story to become more of the consensus view. But the interesting thing is that when it does, the increase in confidence that would result would indicate that risks are to the upside in terms of commercial property market performance compared to most current industry forecasts. I think this is especially true for the office market in Shanghai and Beijing where vacancy rates are at low levels and a modest increase in marginal demand could drive rents higher much faster.
Another potential source of upside risk is the United States’ economy. Once the US gets past the fiscal cliff – whether Congress takes the country over the cliff first or not – the nascent recovery in the US housing market could lead to steady new job creation. The bursting of the housing bubble in the US was the largest cause of job losses, and with housing starts finally ticking upward, the industry is well positioned to begin slowly adding some of those jobs back. What would China look like if the US were growing at 2.5 – 3% in the second half of 2013?
So while we don’t see much urgency in the behaviour of our clients at the moment, chance favours the prepared mind, and occupiers should get prepared now to move forward with relocations or expansions before bargaining power shifts firmly back to landlords.
