[Monthly/No. 20] US, EU, China...The shadow of a slowdown

 

Don't see this email? SEP, 2023   Vol 20 Over 30,000 people in the commercial real estate industry are viewing this letter right now. Realization of the Chinese Real Estate Nightmare Could Lead to a Worldwide Economic Slowdown The perilous state of the Chinese real estate market is ringing alarm bells. Country Garden, one of China's largest commercial developers, teeters on the verge of default. Meanwhile, the other two giants of the Big 3, Evergrande and Wanda, grapple with severe financial instability. A significant volume of unsold property is driving down prices. According to the Financial Times, data from Goldman Sachs and the National Bureau of Statistics of China show that 70 cities across the nation have witnessed a seasonality-adjusted decline of 2.5% compared to July of the previous year. Alarmingly, even tier-1 cities like Shenzhen are not immune to these challenges.   In response, the People's Bank of China has begun slashing interest rates. However, many economists remain skeptical about its potential impact. The Financial Times has even speculated on the possibility of China's economic growth rate lagging behind that of the United States.   If the current trends persist, China's real estate woes are likely to stretch into the second half of 2023 and even spill over into 2024. This, coupled with the challenges in the U.S. commercial and China's residential real estate sectors, raises concerns about a global economic slowdown.   #CHINA #REALESTATE #SLOWDOWN  #COUNTRYGARDEN #DEFAULT #RSQUAREUNIVERSE Footprint RSQUARE Invests in Speser's Contract Management Service, Copiez RSQUARE has announced an investment in Speser, the company behind Copiez.   Since September 2022, Speser has operated Copiez, a blockchain-focused contract management app that provides safe electronic storage for vital documents such as contracts, identification cards, certificates, and warranties.   The service allows users to label these documents, ensuring they are safeguarded against physical damage or loss.   Along with the investment, RSQUARE will support the deployment of B2B solution for Copiez.. Concurrently, Speser aims to leverage RSQUARE's data management expertise to broaden its service offerings. RSQUARE Design Introduces '135 Whole Service' to Enhance Client Experience In a bid to enhance the client experience within the realms of interior and architecture, RSQUARE's subsidiary, RSQUARE Design, has rolled out its '1-3-5 Whole Service'.   The initiative guarantees the assignment of a site manager within a day of receiving a defect or A/S request, site visits within three days, and completion of repairs within five days (or within a day for safety issues).   The Korea Consumer Agency's statistics underscore the importance of such a service. Between 2018 and September 2021, there were 19,831 home improvement requests, alongside 1,603 damage remediation appeals. Out of these, 24.0% were attributed to non-compliance or delays in defect repairs, while 14.0% were related to material quality, construction, or finishing defects. The B2B interior business landscape mirrors these challenges as customers lack the tools to widen their options and resolve the issues.   RSQUARE Design's introduction of the 1-3-5 Whole Service and dedicated customer service channels, coupled with bi-annual meetings post-project completion, illustrates their commitment to addressing these issues and enhancing client satisfaction. Monetizing Unique Datasets Amid Economic Uncertainty In light of potential economic downturns, businesses are recalibrating their strategies. Instead of cost-intensive expansions, many are exploring ways to capitalize on their unique assets. A standout approach has been monetizing datasets acquired during customer transactions. In a similar vein, RSQUARE is broadening its data solution business. The company is set to offer scarce commercial real estate market data to investment entities like asset managers, pension funds, and mutual aid societies via their platform, 'RSQUARE Analytics Solution'. Furthermore, RSQUARE is offering paid reports based on its comprehensive database for institutional investors. Insight Surge in Inventory Places Warehouses in Jeopardy RSQUARE's '2023 1H Metropolitan Logistics Market Report' reveals that the average sales price per 3.3㎡ of a logistics center in the Seoul metropolitan area has plummeted by 23% since the second half of last year, standing at 5.96 million won. Despite the downturn, supply continues to swell. The first half of this year saw a 37% increase in logistics center supply in the Seoul metropolitan area compared to the latter half of the previous year. Jin Won-chang, Director of Big Data Consulting Team, warns of potential supply and demand imbalances due to the rapid influx of new centers. Low-temperature distribution centers, in particular, have felt the brunt, with vacancy rates soaring above 10% approximately three times that of their regular-temperature counterparts. Fast-growing e-commerce entities are now reconsidering expansion plans or mulling over subleasing options. However, there's a silver lining. The first half of the year witnessed transaction values and areas reaching 3.2 trillion won and 501,000 square meters, respectively marking a more than 30% increase from the latter half of the previous year and the highest since records began in 2010.   This boost can be attributed to pre-purchase deals, which constituted about 66% of total transactions. If these are discounted, the actual transaction volume saw a dip compared to the previous semester. REPORT DOWNLOAD Seoul office and commercial real estate transactions decline by 13.5% in June According to RSQUARE’s analysis, based on the Ministry of Land, Infrastructure, and Transport's real estate transaction price data, office and commercial real estate transactions in Seoul saw a 13.5% decrease in June from the previous month, tallying at 128. The predominant share of the transactions was "small buildings" with sales prices under 10 billion won, making up 82% of the total. These were majorly located in areas such as Gangnam-gu, Jongno-gu, and Jung-gu.   Interestingly, only two significant transactions occurred in the 100 billion won bracket, notably in Bangbae-dong in Seocho-gu and Chodong in Jung-gu. Analysts believe that the large building market, which generally attracts institutional investors, is still in recovery. The obstacles being rising interest rates and an economy that's losing momentum.   The total transaction value for June stood at 1.916 trillion won, marking a 24.7% increase from May. But in a year-on-year comparison, there's a sharp decline of 63.5%. In 2022, the monthly transaction average for office and commercial real estate was around 2.4 trillion won. This year, however, it has averaged below 1 trillion won. Chinese Real Estate Concerns Indicate Looming Economic Slowdown The Chinese real estate market is witnessing an event that's being termed "unprecedented."   Country Garden, one of the major private developers in the nation, has defaulted on its debt payments. Concurrently, Zhongrong International Trust, a top trust in the country, is experiencing delays in cash payouts on maturing investments.   The immediate causes of the crisis are identified as an oversupply in housing coupled with shrinking demand. Reports from China Real Estate Information, a consultancy firm, highlighted that July's housing contracts for the top 100 developers fell by 33% year-on-year. Country Garden's contracts for the same month saw a steeper decline of 60%.   Predictions by Goldman Sachs indicate a dramatic fall in urban housing demand, from 18 million units in 2017 to a mere 11 million this year. In contrast, Chinese developers have maintained a delivery rate of about 13 million units annually for the past ten years.   Data from Reuters, based on National Bureau of Statistics (NBS) information, showed that new home prices in July dipped for the first time in 2023. Major cities like Shanghai and Beijing aren't exempt from this trend.   The grim reality of the Chinese real estate market becomes more apparent with over 50 developers defaulting or missing debt payments in the past three years, as per Standard & Poor's (S&P).   Shadow banks, a less discussed risk, are also showing signs of failure. Valued at an estimated $3 trillion, these financial institutions, which aren't under central bank supervision, are comparable in size to the UK's economy.   In light of these developments, Barclays has revised its economic growth forecast for China this year, dropping it from 4.9% to 4.5%. Even as the People's Bank of China slashed its benchmark interest rate in August, hopes to counteract the real estate slowdown are muted.   Adding to the concerns, many small businesses and consumers are already under significant economic stress. The nation faces a record youth unemployment rate exceeding 21%, and deflationary trends are tightening their grip on corporate profits. In a significant blow, new bank loans in July reached a low not seen in 14 years. People "Global companies expanding in Northern Vietnam" by RSQUARE Vietnam "The recent visit of the president to Vietnam and the promises of Korean companies to invest in the country have brought expectations to the Vietnamese economy," said Shin Jimin, head of R SQUARE Vietnam, in an interview with Digital Times. "Corporate real estate inquiries are also increasingly focused on the northern region, where global companies are expanding." "The tiny building market has reached an inflection point" by Buy & Sell Team "The number of small and medium-sized buildings for sale has been increasing recently," said Jeong-oh Yeom, a team leader in charge of advising on the sale and purchase of small and medium-sized buildings at RSQUARE, in an interview with Aju Economy. "If you're a building owner, you need to hold on to your cash flow or establish a new leasing strategy, and if you're a buyer, we recommend a strategy of actively seeking out distressed properties in areas you're interested in." Subscribe to our newsletter Domestic and international office and commercial buildings 300,000 deep and unique data points to address information asymmetries in the real estate market.   Office, warehouse, and retail leasing brokerage, buy-sell advisory, asset management, and data analytics, Interior & Remodeling, Overseas Business(Vietnam, Singapore) Contact us        Partner with us       Past Newsletters RSQUARE on the 3rd floor of Anam Tower, 311 Teheran-ro, Gangnam-gu, Seoul, Korea ⓒ 2023 RSQUARE All Right Reserved. If you don't want to receive mail, click here, If your email address has changed, please click here.