By RCA’s Benjamin Chow
Beijing and Shanghai prices, as measured by the RCA Hedonic Series price per unit, near doubled in the 10 years through 2017. The relative insulation of the Chinese cities from the Global Financial Crisis fallout, coupled with strong occupancy growth from domestic firms, led office prices to levels similar to those of Tokyo and San Francisco.
However, the longer-term office price growth trend for Beijing and Shanghai was interrupted with the U.S. and China exchanging tariffs in early 2018. Since 2018 Beijing has registered a pricing decline of 22% and in Shanghai prices have dropped 7%, even as prices in other global cities continued their upward trajectory.
Interestingly, Beijing has emerged as a much more volatile office market than Shanghai. Despite its role as the seat of government in China, Beijing is a less liquid and more tightly-held location, resulting in more extreme movements in volumes and pricing. Both markets, however, are now seen as core office investment locations and a key part of any regional or global portfolio.
The gradual softening in pricing since 2018 reflected the heightened possibility of a Chinese economic slump following a potential de-coupling of the world’s two largest economies. In hindsight, these declines seem almost prescient in view of the emergence of COVID-19, which has brought forward the downturn and Chinese real estate volumes are almost certain to take a sharp hit in the coming months.
Nonetheless, with China already appearing to have the spread of the virus under control, pricing trajectories in Beijing and Shanghai offer us a potential glimpse into the post-pandemic future of other global cities.