The Bank of Russia unexpectedly maintained its key interest rate at a record-high 21% , defying analysts’ expectations of another significant hike as inflation remains stubbornly elevated. The decision marks a shift toward a more measured approach in balancing economic growth and price stability. Key Details Inflation Concerns: Annual inflation climbed to 8.9% in November, well above the central bank’s 4% target , with inflation expectations reaching 13.9% in December. Policy Rationale: The central bank cited the significant tightening of monetary conditions after October’s 200-basis point hike as sufficient to resume disinflationary processes. Governor Elvira Nabiullina emphasized avoiding both economic overheating and severe slowdowns. Economic Overheating: Elevated government spending on the war in Ukraine and social programs, coupled with labor shortages and rising wages, have fueled strong domestic demand, exacerbating price pressures...
In many parts of China, warehouses and industrial parks that once buzzed with activity are now eerily quiet. These logistics hubs, built with high hopes of a booming e-commerce and manufacturing industry, are struggling to find tenants. This unexpected slowdown is hitting landlords hard, forcing them to slash rents and shorten lease terms. Real estate investment trusts (REITs) that own these commercial properties have seen their shares plummet, and some managers expect rental income to drop even further.
Vacancy rates at logistics properties in eastern and northern China are nearing 20%, the highest in years, according to real estate consultancies. More warehouses are still being built, worsening the situation. “We are looking at a supply glut in logistics and industrial properties in China,” said Xavier Lee, an equity analyst at Morningstar.
This downturn is disappointing for property owners who were banking on an economic rebound in China this year. Over the past decade, global institutions have invested more than $100 billion in Chinese commercial real estate, including big names like Blackstone Inc., PGIM, Singapore’s GIC Pte., and CapitaLand Group.
Investment Boom Turns Bust
During the pandemic, investments in China’s commercial real estate peaked, but now, a few institutions are considering selling off their worst-performing assets before rents fall further. Others hope to ride out the downturn, expecting long-term gains.
Hank Hsu, CEO and co-founder of Forest Logistics Properties, remains optimistic. His company, which owns warehouses and distribution centers in major cities like Beijing, Shanghai, and Wuhan, is planning to build another facility in the southern Greater Bay area soon. “We will keep deploying capital in China in the next one to two years because we consider it a golden opportunity,” he said.
Spending Cutbacks Hit Hard
China’s commercial real estate sector, once a bright spot, is now feeling the effects of spending cutbacks by both consumers and businesses. The slowdown in logistics and industrial sectors mirrors the office property slump in cities like Beijing and Shanghai. Overbuilding, fueled by large sums of money when interest rates and construction costs were low, has also contributed to the problem.
Warehouses built for e-commerce fulfillment, refrigerated storage, and manufacturing components are underutilized. China’s domestic e-commerce growth has slowed as shoppers become thriftier, and the country’s high online retail penetration rate of 30% doesn’t leave much room for growth.
Geopolitical tensions are prompting companies to shift some manufacturing offshore to reduce reliance on China. This, along with a slowdown in cross-border trade, has decreased the need for storage facilities in mainland China.
Rising Vacancies and Falling Rents
In eastern China, the warehouse vacancy rate climbed to 19.2% in the first quarter, while the nationwide rate was 16.5%, according to Cushman & Wakefield. This contrasts with the U.S. and other Asian logistics markets where vacancies remain low and rents are rising.
Of the 20 major Chinese cities Cushman tracks, 13 saw logistics rents drop in the first quarter, with Beijing and Shenzhen leading the declines. An additional 33 million square meters of new supply is expected by the end of 2026.
CapitaLand China Trust, which owns malls, business parks, and other properties, acquired four logistics parks in late 2021 for 1.68 billion yuan ($231 million). Their occupancy rate dropped to 82% at the end of 2023 from 96.4% a year earlier. The trust’s shares have lost 27% year-to-date, compared to a 2.7% gain for the benchmark Straits Times Index.
Industrial Parks and Office Spaces Hit
Industrial parks designed as science and technology clusters are also losing tenants. In Beijing, the vacancy rate at business parks was 20.5% in the first quarter. In Guangzhou, some multinational companies are closing plants and changing strategies after a disappointing post-pandemic recovery.
Swiss healthcare company Lonza Group AG is shutting down a drug manufacturing facility in Guangzhou, which started production just three years ago. Similarly, a Chinese REIT saw occupancy at one of its buildings drop by half when a tenant, a subsidiary of smartphone giant Oppo, left.
Tough Negotiations Ahead
Landlords are struggling to keep tenants and are offering flexible rent terms and other incentives. “Competition for tenants is pretty intense at the moment,” said Luke Li, managing director at ESR Group Ltd. ESR saw its revenue from Greater China drop by 20% in 2023.
Mapletree Logistics Trust, another Singapore-listed REIT, has also faced challenges. Rents across its 43 properties in China fell 10% in the first quarter of 2024, and some tenants are behind on rent payments. The trust’s CEO, Ng Kiat, expects the volatile environment to continue for the next 12 months and is considering selling some underperforming assets.
“Everybody is cutting costs,” said Humbert Pang, Head of China at Gaw Capital Partners. Rents at logistics properties aren’t rising despite occupancy. “Most logistics space owners are having a tough time negotiating with tenants,” he added.
As China's commercial real estate sector faces these challenges, property owners and investors are hoping for a turnaround, but the road ahead looks uncertain.
$100 Billion Bet on China's Economy Goes Sour: Warehouses Sit Empty as Business Slows
By Shawna Kwan and Low De Wei June 26, 2024, 7:00 AM GMT+8
In many parts of China, warehouses and industrial parks that once buzzed with activity are now eerily quiet. These logistics hubs, built with high hopes of a booming e-commerce and manufacturing industry, are struggling to find tenants. This unexpected slowdown is hitting landlords hard, forcing them to slash rents and shorten lease terms. Real estate investment trusts (REITs) that own these commercial properties have seen their shares plummet, and some managers expect rental income to drop even further.
Vacancy rates at logistics properties in eastern and northern China are nearing 20%, the highest in years, according to real estate consultancies. More warehouses are still being built, worsening the situation. “We are looking at a supply glut in logistics and industrial properties in China,” said Xavier Lee, an equity analyst at Morningstar.
This downturn is disappointing for property owners who were banking on an economic rebound in China this year. Over the past decade, global institutions have invested more than $100 billion in Chinese commercial real estate, including big names like Blackstone Inc., PGIM, Singapore’s GIC Pte., and CapitaLand Group.
Investment Boom Turns Bust
During the pandemic, investments in China’s commercial real estate peaked, but now, a few institutions are considering selling off their worst-performing assets before rents fall further. Others hope to ride out the downturn, expecting long-term gains.
Hank Hsu, CEO and co-founder of Forest Logistics Properties, remains optimistic. His company, which owns warehouses and distribution centers in major cities like Beijing, Shanghai, and Wuhan, is planning to build another facility in the southern Greater Bay area soon. “We will keep deploying capital in China in the next one to two years because we consider it a golden opportunity,” he said.
Spending Cutbacks Hit Hard
China’s commercial real estate sector, once a bright spot, is now feeling the effects of spending cutbacks by both consumers and businesses. The slowdown in logistics and industrial sectors mirrors the office property slump in cities like Beijing and Shanghai. Overbuilding, fueled by large sums of money when interest rates and construction costs were low, has also contributed to the problem.
Warehouses built for e-commerce fulfillment, refrigerated storage, and manufacturing components are underutilized. China’s domestic e-commerce growth has slowed as shoppers become thriftier, and the country’s high online retail penetration rate of 30% doesn’t leave much room for growth.
Geopolitical tensions are prompting companies to shift some manufacturing offshore to reduce reliance on China. This, along with a slowdown in cross-border trade, has decreased the need for storage facilities in mainland China.
Rising Vacancies and Falling Rents
In eastern China, the warehouse vacancy rate climbed to 19.2% in the first quarter, while the nationwide rate was 16.5%, according to Cushman & Wakefield. This contrasts with the U.S. and other Asian logistics markets where vacancies remain low and rents are rising.
Of the 20 major Chinese cities Cushman tracks, 13 saw logistics rents drop in the first quarter, with Beijing and Shenzhen leading the declines. An additional 33 million square meters of new supply is expected by the end of 2026.
CapitaLand China Trust, which owns malls, business parks, and other properties, acquired four logistics parks in late 2021 for 1.68 billion yuan ($231 million). Their occupancy rate dropped to 82% at the end of 2023 from 96.4% a year earlier. The trust’s shares have lost 27% year-to-date, compared to a 2.7% gain for the benchmark Straits Times Index.
Industrial Parks and Office Spaces Hit
Industrial parks designed as science and technology clusters are also losing tenants. In Beijing, the vacancy rate at business parks was 20.5% in the first quarter. In Guangzhou, some multinational companies are closing plants and changing strategies after a disappointing post-pandemic recovery.
Swiss healthcare company Lonza Group AG is shutting down a drug manufacturing facility in Guangzhou, which started production just three years ago. Similarly, a Chinese REIT saw occupancy at one of its buildings drop by half when a tenant, a subsidiary of smartphone giant Oppo, left.
Tough Negotiations Ahead
Landlords are struggling to keep tenants and are offering flexible rent terms and other incentives. “Competition for tenants is pretty intense at the moment,” said Luke Li, managing director at ESR Group Ltd. ESR saw its revenue from Greater China drop by 20% in 2023.
Mapletree Logistics Trust, another Singapore-listed REIT, has also faced challenges. Rents across its 43 properties in China fell 10% in the first quarter of 2024, and some tenants are behind on rent payments. The trust’s CEO, Ng Kiat, expects the volatile environment to continue for the next 12 months and is considering selling some underperforming assets.
“Everybody is cutting costs,” said Humbert Pang, Head of China at Gaw Capital Partners. Rents at logistics properties aren’t rising despite occupancy. “Most logistics space owners are having a tough time negotiating with tenants,” he added.
As China's commercial real estate sector faces these challenges, property owners and investors are hoping for a turnaround, but the road ahead looks uncertain.
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