Developers take real estate supply in stride

Property developers' interest in commercial real estate in China has been running high despite growing concerns about oversupply.

Swire Group, a leading developer, owner and operator of mixed-use commercial properties in Hong Kong and the Chinese mainland, is actively looking for land on which to develop new projects.

"Oversupply depends on the market," said John Slosar, chairman of Swire Pacific Ltd. "More important, as a long-term investor in China, our business plan will not change merely because of the short-term fluctuations in the market."

Recent research shows that risks are rising in China's commercial property sector, with a surplus of space in major cities. Most office and retail markets in the country will face pressure from a supply glut this year, according to a report from CBRE, a global real estate and investment firm.

Supplies nationwide reached an all-time high in the fourth quarter of 2013, with 1.77 million square meters of office space delivered. More than 70 percent was in second-tier cities.

The new office supply in western China alone - Chengdu and Chongqing - reached 764,000 sq m, accounting for more than 40 percent of the national total. The average vacancy rate went up by 0.9 percentage points to 15.2 percent.

According to research by Cushman & Wakefield Inc, the world's largest private real estate services company, the new supply of commercial property in the 30 cities it monitors will total 75 million square meters over the next few years, with a new supply peak of 20 million sq m this year. The company forecasts that about 18 million sq m in new commercial space will enter the market in 2015.

"If we still believe that over the long term we can attract customers, attract brands and generate sales in our retail properties, then we are fine with the market fluctuation," Slosar said. "We intend to not worry too much about that in next three, six, nine or 12 months."

Slosar said Swire will focus more attention on big cities like Beijing, Shanghai and Guangzhou.

"We care more about the cities that we know and have experience in. So we won't pay attention to all the cities, because we might not have the expertise there," Slosar said.

Swire currently has real estate projects in five cities.

YK Pang, CEO of Hong Kong Land, one of the largest property developers in Asia, held a similar view.

"We will continue to develop commercial projects in China, as the market is so important for us," Pang said. "If we are confident about a city's economic prospects and customer demand in the long run, the short term pressure is not a big problem. Our commitment to China is not five years but maybe 125 years."

Hong Kong Land has a large-scale commercial development in Beijing. The project, named WF Central, occupies a prime site of approximately 21,000 sq m on Wangfujing Street in Dongcheng district. It will offer some 50,000 sq m of luxury retail space as well as a 74-room Mandarin Oriental hotel.