The market may be difficult, but ULI members in China continue to see opportunities in a number of real estate sectors and cities.

ULI members gathered in Shanghai last month for a discussion of the 2025 Emerging Trends in Asia Pacific report, published by ULI and PwC. Although the event took place before the imposition of wide-ranging import tariffs by the US government, the China market has been battling oversupply in many cities and sectors, along with a rising number of distressed assets. Members discussed a series of topics in round table format, reporting their conclusions to the wider audience.

While certain sectors remain troubled and foreign buying is very limited, there is a growing pool of institutional domestic capital and sectors where growth is still occurring.

Distress and how to work it out was a prime topic. Rising vacancies and falling values have put many assets into difficulties, however a lack of capital, especially foreign capital, and a lack of policy flexibility means the restructuring of assets is difficult. Furthermore, many distressed assets have complex structuring, which is a barrier to workouts.

Much of the currently available capital sits at opposite ends of the risk spectrum. At one end, state-owned distressed specialists take on only the largest distressed debt opportunities while at the other, domestic insurance companies seek stable income streams. Members said the market needs ways to channel capital from foreign and private investors into the distressed asset space and to structure more mid-sized distressed asset opportunities; those which may be too small for state capital but still offer meaningful value.

The challenges in the market vary from sector to sector, with the office sector facing the strongest headwinds. CBRE research expects the nationwide office vacancy rate to hit 26.7% by the end of this year. Members discussing the sector did not see an immediate solution to the sector’s woes, concluding that “there appears to be no clear or effective solution to the challenges facing office buildings at this time”.

Brighter signs

However, there are brighter signs and clear opportunities in many other real estate sectors, including retail, which has seen a number of large-scale transactions. Some buyers are motivated by the ability to list some retail assets via a China real estate investment trust (C-REIT) but there is also family office and insurance capital targeting the sector.

Meanwhile, data centres continue to offer opportunities due to China’s growing digital demands. As in other markets, there is debate about whether data centres should be considered real estate or infrastructure and concerns about the concentration of demand in a small number of large tenants. Furthermore, data centres are not valued in the same way as other real estate assets: they are often appraised based on operational metrics—such as the number of active server rooms or energy consumption capacity. In many cases, value is calculated per kilowatt, rather than per square metre.

Nonetheless, members noted that the fundamentals of data centres can be likened to the fundamentals of other sectors. Logistics hubs are driven by transport nodes and highway connectivity, office buildings cluster around core districts and innovation parks. Meanwhile data centres follow power and telecoms infrastructure—the new backbone of the digital economy. The right sites, optimised for connectivity and electricity, will attract tenant demand.

Members discussing the industrial and logistics sector concluded that investors are overlooking smaller and emerging markets, especially in Central and Western Chinese cities such as Chongqing and Chengdu, which are “proving to be remarkably resilient and stable”, with better vacancy than first tier cities. Secondly, there needs shift from a supply-side approach to one that focussing on evolving tenant demand from a diverse tenant base, from e-commerce platforms to manufacturers.

Rental housing demand

An undersupply of rental housing means the sector has performed well, even though most new projects are being developed in less central locations, due to land prices. Members suggested vacant office buildings might be repurposed into much-needed rental housing in more central areas.

The C-REIT sector has grown to nearly 60 vehicles which offer securitised infrastructure and real estate assets. While some members felt the sector was not as ‘hot’ as last year, it is still attracting interest from institutions looking for stable income returns.

However, there were a number of concerns about the restrictive nature of the existing REIT guidelines, which reflect government demands for stability and accountability. The approvals process for a C-REIT is notoriously long and China’s National Development and Reform Commission (NDRC) insists that sponsor proceeds from selling to a REIT should be reinvested rather than “cashed out”.

Despite the restrictions and the evolving regulatory picture, REITs are seen as an important development in China’s capital markets and an opportunity for sponsors to deleverage, as sponsors can replace legacy loans.