With the relocation of multinational supply chains from mainland China, rental prices in various cities across Asia are rapidly increasing.
According to Bloomberg, more and more multinational companies are implementing the “China plus one” strategy, shifting production out of China to reduce risks stemming from the strained relations between Beijing and the United States and the European Union. This shift has driven property prices in the surrounding regions of China, presenting a stark contrast to the sluggish real estate market in China.
Reported by Jones Lang LaSalle (JLL), in the first quarter of 2024, the total leasing area in Asia exceeded the average level of the past five years by 5%. The leasing area signed in India in the first quarter was the second-highest recorded.
Knight Frank LLP data shows that in the first quarter of 2024, property prices in Ho Chi Minh City, Vietnam, rose by 6.6% compared to the same period last year, making it one of the cities with the highest price increase in Asia.
In contrast, according to CBRE Group Inc.’s forecast, rental prices in China’s largest cities are expected to decline by 6% in 2024.
As multinational corporations diversify their supply chains, India is actively absorbing manufacturing opportunities leaving China. Currently, India is home to Samsung Electronics’ largest phone factory, and at least 7% of iPhones by Apple are produced in India. Data from Fathom Financial Consulting Ltd. shows that in November 2023, India’s exports of electronic products to the United States accounted for 7.7% of China’s exports, which is triple the amount from two years ago.
With the booming developments in technology and finance sectors, demand for local real estate has become particularly strong. James Gold, Director of Research for Asia Pacific at Savills, stated that more foreign companies are beginning to establish research and development centers in India.
“Most of the expansion demand of multinational companies is now in India,” Gold said.
According to Savills’ report, rental prices in Mumbai rose by 5.6% in 2023, while in Delhi, prices rose by 3.6%.
ICICI Securities, India’s largest private bank, has purchased 188,000 square feet of land in the Mindspace Juinagar development project in Mumbai, while the top U.S. chip company Nvidia secured a new lease for 73,000 square feet in a 16-story building near Delhi.
Savills mentioned that businesses are moving out of India’s major commercial hubs into tech center cities like Chennai and Pune, which possess a large pool of potential employees.
American semiconductor company Qualcomm leased 500,000 square feet in Chennai in 2023 and 600,000 square feet in Bangalore.
Vietnam has also emerged as a major alternative to Chinese manufacturing. Foreign investments in Vietnam increased by one-third in 2023, with most of it directed towards manufacturing. Apple, Intel, and Samsung suppliers have now set up factories in Vietnam, and Meta Platforms (formerly Facebook) is considering expanding its investments in Vietnam.
Christine Li, Director of Research for Asia Pacific at Knight Frank, stated that rental growth in Vietnam is surging compared to other countries.
“Demand is indeed shifting from China to other regions in Southeast Asia and India,” she said.
Li pointed out that compared to other countries, there have been delays in constructing office buildings in China during the pandemic, and although there is now a large supply being delivered, demand is sharply declining.
Knight Frank predicts that aside from the southern tech center Shenzhen, a quarter of prime office space will remain vacant, with a projected 23% increase in vacant space for newly constructed commercial buildings in 2024.
The latest report from S&P Global mentions that real estate sales in China continue to decline, and structural factors are squeezing rated developers, with the real estate market still trying to find its bottom.
S&P expects real estate sales in China to decline by 10% to 15% year over year in 2024. If sales drop significantly, developers will have to consider other ways to raise funds, such as selling non-core assets or raising funds from shareholders.
In contrast to the struggles faced by Chinese real estate investors, overseas investors are finding opportunities among countries taking on the role of accommodating the shift from China.
Gaw Capital Partners, a real estate private equity firm managing over $30 billion in assets, is particularly optimistic about Vietnam. The company, under the leadership of Chairman Goodwin Gaw, owns development projects such as Lim Tower in Vietnam, a 34-story building located in the central part of Ho Chi Minh City.
“As long as there is geopolitical tension between China and the U.S.,” Goodwin Gaw said in an interview with Bloomberg TV in March, “the China plus one strategy will continue.”