JLL has been tracking China’s rapid urbanisation for a decade. In the three years since we last reported on these markets, the landscape has changed as China moves from fast, investment-fuelled growth to a more sustainable model of higher-value, consumption-based growth – the 'new normal'. Quality of life, cultural assets and environmental considerations are coming to the fore as cities compete for talent and businesses. Real estate will play an important enabling role in improving the liveability and sustainability of China's cities as the urbanisation process continues.
China is moving to a sustained, slower growth rate as the government focuses on transforming its economic model. The consensus among economists suggests that national GDP growth will trend at around 5%-6% per year. If maintained, these rates of growth will still be impressive.
The technology gap between China and the developed world has narrowed as the country moves up the value chain. The focus is now on service sector growth, white-collar jobs, indigenous innovation and high-value manufacturing. This will inevitably heighten the demand for high-quality real estate across multiple sectors.
Domestic consumption is playing a greater role in propelling growth. China60's addressable consumer base currently stands at 130 million and is projected to increase by 70% to 220 million by 2020. Consumers are becoming more discerning, price-sensitive and digitally-connected.
China is going through a digital revolution at a much faster pace than anticipated only a few years ago. The country is now home to the world's largest online population. This will transform demand for retail and warehousing space across the China60. Its effects are also rippling through the office and hospitality sectors.
China has seen the greatest movement of people into cities in history, but still only 55% of the total population live in urban areas. By 2025 a projected 70% will be in cities, equivalent to an additional 170 million people. The reform of China's household registration system may push people towards smaller cities.
We have entered a new era of city competitiveness. Market forces will drive competition and cities will look for differentiation as they carve out new niche activities. 'Quality of life' and environmental issues will rise to the fore; and real estate will play an important enabling role in improving the liveability of China's cities.
The rise of a new breed of globally-competitive domestic corporations will accelerate across a broad range of industries, from financial and business services to e-commerce and technology. Demand from domestic corporations for high-quality real estate is already reaching new heights.
The elimination of regulations and barriers for the private sector to enter certain industries (traditionally dominated by state-owned enterprises), as well as the expansion of free trade zones and reforms in the financial sector, should also stimulate demand for real estate.
The anti-corruption campaign instituted in 2013, which is aimed at combating systemic corruption, is having a deep impact on the luxury retail and hospitality sectors, forcing these segments into radical structural change.
The environmental challenges facing China's cities are immense, but there is room for optimism. Policymakers are committed to making improvements and Greater China has the second largest stock (after the U.S.) of LEED certified buildings. But the government needs to do more to encourage and enforce green building standards.
As China enters a 'new normal' period, what will shape China's cities and their real estate markets over the next 10 years?
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