CITIC SEC released a research report stating that policy efforts are supporting the optimization of offline consumption facilities. The operation, ownership, and renovation of commercial real estate may usher in the most favorable development environment in history. The REITs market continues to expand, with long-term capital such as insurance funds increasingly allocating to commercial real estate. Real estate investment funds, after years of stagnation, are entering a phase of rapid growth.
Cities are shifting toward connotative development, leading to declining reinvestment returns. Most core assets have become non-tradable, presenting significant revaluation potential for key heavy assets. Demand for renovation of existing properties continues to surge, while leading companies face capacity constraints. The report predicts that top commercial management firms will expand leasing operations, improving order quality through selective screening. Meanwhile, the broader commercial management industry is expected to grow rapidly, with unmet demand from market leaders being absorbed by second-tier brands.
Key insights from CITIC SEC include: 1. **Offline Consumption Recovery & Policy Support**: Enhancing consumption efficiency by optimizing offline retail environments is a key policy goal for the 15th Five-Year Plan period. Policies encourage tailored facility upgrades to improve consumer experiences and urban commercial supply. Legal improvements in commercial land-use rights renewal may significantly reduce uncertainties in long-term commercial property holdings.
2. **REITs Market Expansion & Real Estate Funds Gain Momentum**: As of October 2025, China’s REITs market exceeded CNY 220 billion, becoming a prime exit route for overvalued real estate assets. Four factors underpin growth: - Urban connotative development easing oversupply; - Shopping malls maintaining stable rents via operational moats; - Low valuations in bulk real estate transactions amid declining interest rates; - Integration of operational expertise with fund platforms. The report anticipates a major leap for real estate investment funds by 2026, with Pre-REITs likely expanding rapidly.
3. **Long-Term Capital Favors Premium Assets; Core Assets Undervalued**: Insurers’ current low allocation to real estate leaves room for increased investment, potentially shifting from core/core-plus to value-add/opportunistic strategies. Long-term leases and shopping malls are preferred. As high-return reinvestment opportunities dwindle and balance-sheet pressures ease, premium asset divestments may decline post-2026, creating a demand-supply imbalance. Core assets (e.g., luxury malls) in stabilized urban hubs, with limited new luxury store openings, are increasingly held as non-tradable, lacking market-based valuations. Their intrinsic value may far exceed book estimates, with cap rates conservatively around 4%.
4. **Operational Upgrades Outpace Capacity**: Despite rising demand for shopping mall renovations, top firms face capacity limits due to non-standardized operations. Leading players will focus on quality over quantity in new projects, transitioning from pure asset-light models to leasing or fund-based operations to boost returns. Meanwhile, unmet demand will drive industry fragmentation, with rapid revenue growth for commercial management firms.
**Risks**: - Polarization in shopping malls, with some assets struggling to generate returns; - Insufficient policy support for commercial upgrades, risking low footfall/sales in mixed-use complexes; - Uncertain timelines for land-use rights renewal; - Risks in new business models (e.g., leasing) and formats (e.g., outlet malls).