China's commercial property sector will replace the residential market as the emerging star in 2011, with tightening measures continuing in the housing market while domestic consumption picks up.

Li Ming, CEO of Sino-Ocean Land Holdings Limited, said boosting the development of the commercial property business will be one of the main focuses of the company's new five-year development plan.

So far, the company has invested approximately 10 billion yuan ($1.52 billion) in commercial properties and held about 2 million square meters reserved for commercial real estate development.

"As the government greatly strengthens its efforts to increase the supply of affordable housing, the growth potential of the residential housing sector may slow in the long run, so increasing investment property holdings will be a must for our business development in the future," Li added.

Other brand property developers followed a similar strategy. Vanke, the country's largest property developer, spent 45.4 billion yuan on acquiring 78 land parcels as of the end of October.

This included 15.48 billion yuan spent on parcels for commercial development.

For Wang Zhe, general manger of Tianjin-based Lecheng Real Estate, 2011 will be a landmark year for the city's commercial property development as a great number of large-scale projects developed by brand real estate companies will enter the market.

"However, I don't think the tightening measures on the residential sector are the major driver of the flourishing commercial sector. Instead, the robust economy and customers' soaring commercial demand is the real reason," Wang said.

The company's "Galaxy Mall" project, one of the largest shopping malls in Tianjin, has rented more than 35 percent of its floor space, beating the management's expectation.

James Zhu, general manager of the Savills branch in Tianjin, said there is a clear trend in Tianjin in which more property developers are increasing their exploration of the commercial sector, as more international retailers enter the second-tier cities.

Chris Law, director of Oval Partnership Ltd, a Hong Kong-based company specializing in commercial property design, said the number of commercial mixed-use developments in China has significantly risen in the past year, with most of the new developments in the second-cities, such as Changsha, Wuhan, Hangzhou, Chongqing and Chengdu.

"The consumption power is stronger, and retailers are much more keen to expand their shop networks. Moreover, the developers are more cash-rich, with most of the developments being for rent rather than for sale," said Law.

Supported by China's sound economic development, coupled with a strong rebound in the rental prices of prime office and retail property last year, institutional investors also intensified the expansion of their portfolios by acquiring prime office and retail projects in Beijing, as witnessed by several notable en-bloc transactions completed in the last quarter of 2010, according to the US-headquartered real estate service provider Jones Lang Lasalle.

By Hu Yuanyuan

(China Daily 01/21/2011 page16)