With China’s property market struggling, India, South Korea and Vietnam are hot

CBRE expects rents in China’s biggest cities to fall as much as 6% this year as the country’s property market craters

JUST a few years ago, Asia’s commercial property market was driven largely by Hong Kong and China. With the mainland economy booming, it was easy to fill office towers in the former colony and in prosperous cities such as Beijing and Shanghai. But with China in a slump and its real estate market cratering, the focus has shifted to India, Vietnam and South Korea.

As more multinationals diversify their Asia operations beyond China, landlords in nearby countries have an increasingly strong hand. The total area leased in Asia in the first quarter was 5 per cent higher than the average of the past five years, brokerage JLL reported. That stands in sharp contrast to the US, where it was 29 per cent lower, and Europe, which was a third below the fiveyear average.

Brokerage CBRE expects rents in China’s biggest cities to fall as much as 6 per cent this year. In Ho Chi Minh City, they rose 6.6 per cent in Q1 from a year ago, one of the biggest gains in Asia, according to real estate broker Knight Frank.

In India, the square footage of leases signed in Q1 was the second-highest on record, JLL reported. “In the past, the Asia story has been dominated by China,” said Jeremy Sheldon, head of Asiapacific markets at JLL. “Now it’s ‘OK, China is still incredibly important, but what else is out there?’”

India is chipping away at China’s dominance in manufacturing as companies diversify supply chains. The country is home to Samsung Electronics’ biggest mobile phone factory, while contract manufacturers there make at least 7 per cent of Apple’s iphones.

Last November, the value of Indian electronics exports to the US was 7.7 per cent of what China exported – not much, but three times what it was two years earlier, according to Fathom Financial Consulting in London. And the Indiachina ratio for exports to the UK more than doubled in the period, to 10 per cent.

Demand for space has been particularly strong from the booming technology and financial sectors. While India traditionally was seen as the place for back-office operations, more foreign companies are setting up research and development hubs in the country, said Henry Chin, head of research for Asiapacific at CBRE.

Rents rose 5.6 per cent in Mumbai and 3.6 per cent in Delhi in 2023, CBRE reported. Finance firm ICICI Securities, for instance, has booked 188,000 square feet in the Mindspace Juinagar development in Mumbai, and Nvidia has a new lease for 73,000 sq ft in the 16-storey HQ27 tower near Delhi, according to Cushman & Wakefield.

In Vietnam, pledged foreign investment jumped by a third last year as the country emerges as a key alternative to China, with the bulk of money going into manufacturing. Apple, Intel and Samsung suppliers all now have facilities there, and Meta Platforms said it is weighing an expanded investment in the country.

China’s commercial property market faces two problems. More companies are pursuing a so-called China+1 strategy – shifting production away from the mainland to mitigate the risk of a rupture in relations between China and the US and European Union. And after office construction delays during the pandemic, “we are still seeing a lot of supply being delivered” just as demand plummets, said Christine Li, Knight Frank’s Asia-pacific research chief.

In Seoul, with a lack of available space and resilient demand from local companies, rents will rise more than 5 per cent this year, according to CBRE. Space in Seoul has been in short supply since 2021 because of redevelopment restrictions and construction disruption during the pandemic.

As a result, it has an occupancy rate of about 98 per cent, the highest of any major city worldwide, CBRE said. “It is difficult for tenants to find the place they want,” said YJ Choi, an agent at brokerage Cushman & Wakefield Korea. “And there is almost no new supply in key areas.”