Fitch warns of continued struggles for China’s commercial property market in 2025

China’s commercial real estate market is expected to face ongoing challenges in 2025, with weakening operational metrics and mounting pressure on occupancy and rental rates, according to a recent report by Fitch Ratings.

We anticipate weakening operational metrics for our rated issuers, with pressure on occupancy and rental rates due to the continuous oversupply in the office market and softening retail sales.

Fitch anticipates a neutral-to-low-single-digit percentage decline in rental revenues for its rated issuers in the sector, driven by an oversupply of office space and softening retail consumption trends.

The report highlights that commercial property companies in both Mainland China and Hong Kong will continue to grapple with an oversupply in the office market, exacerbated by weak retail sales. As a result, many issuers are likely to experience declining rental rates, especially in the retail sector, where consumption has been sluggish. The weakening demand could lead to negative rental reversions and lower turnover rents for retail properties.

Despite these challenges, Fitch forecasts that the financial profiles of most of its rated issuers will remain stable. This is largely due to the strength of high-investment-grade issuers who benefit from strong funding access and solid financial discipline. These companies have large, unencumbered investment property portfolios, which provide them with sufficient flexibility to navigate the potential risks affecting property valuations.

Fitch noted that while rental declines are anticipated, some rated issuers are expected to offset these losses with contributions from new investment properties, helping to buffer against the overall downturn in the office and retail markets. However, the broader sector outlook remains subdued, with persistent challenges impacting the profitability of commercial real estate companies across China and Hong Kong.

The report also pointed to the possibility of further financial strain on retail property owners, as weaker consumption trends could prolong the period of rental declines and pressure rental income from the sector. This presents an added risk for investors and companies already facing a challenging market environment.

As the commercial property sector in China faces headwinds, Fitch’s outlook suggests that a cautious approach to investment will be necessary, with companies needing to rely on strong financial fundamentals and careful management of their property portfolios to withstand ongoing pressures in 2025.

Attribution: Fitch’s China Real Estate Outlook 2025