CHINA’S commercial real estate market is expected to attract more bargain hunters this year after prices have dropped over the past years, according to Colliers International Group Inc.

Prime office values have tumbled about 30% from their pre-COVID high in some of the nation’s major cities, according to Colliers.

“Given how deep prices have corrected, there are lots of bargain-hunting opportunities,” said Jimmy Gu, a deputy managing director and co-head of capital markets and investment services at Colliers.

“It all depends on buyers’ outlook for the economy.”

Grade-A offices in Shanghai and Beijing used to be sought after by global real estate funds, making them more attractive than those in New York and London. Even in recent years, they largely avoided the challenges crushing global peers, such as rising interest rates and hybrid work arrangements.

Prime offices in Beijing and Shanghai, China’s two biggest cities, traded at capitalization rates of about 5% last quarter, the highest in more than a decade, Colliers data show.

A rise in the cap rate, which is a property’s net income divided by the transaction price, usually signals a decline in real estate values.

“The investment yield increase became especially evident last year,” said Gu. “We’ve come to a buyer’s market.”

Part of the drag on prices has been caused by global real estate funds that faced pressure to exit their investments after COVID delayed the process, Gu said. Falling rents and a global trend to pare exposure to office assets also contributed.

In Shanghai, office rents shrank to the lowest in almost a decade last quarter, and they may decline further this year on a bigger supply pipeline, according to Colliers. In Beijing, net absorption of office space, a measure of occupancy, has only recovered to a third of the pre-pandemic level, signaling weak demand.

Bargain hunters, mostly private entrepreneurs and high net worth individuals, have started to buy the dip, leading to a rise in smaller deals, Gu said.

Nowadays, more than 80% of completed commercial property transaction are less than one billion yuan (US$139 million), while in previous years only about half were under that size. (SD-Agencies)