This article first appeared on GuruFocus.
Foreign investors who once flooded China’s property market with nearly $140 billion are now rushing for the exits and paying the price. Since late 2024, investment giants like BlackRock, Carlyle (NASDAQ:CG), and Oaktree (OAK) have been forced to sell office towers, warehouses, and malls at steep losses, with lenders including HSBC (NYSE:HSBC) and Standard Chartered bracing for rising defaults. Capital values of prime offices in Beijing and Shanghai have fallen about 40% since 2019, according to investors involved in deals, while vacancy rates in major cities now hover between 20% and 40%, among the world’s highest. Analysts say an oversupply of space, combined with a deflationary economy and rising U.S. tariffs, could weigh on the sector for years before any recovery begins.
Carlyle’s sale of The Crest office tower in Shanghai captures the scale of the downturn. Purchased in 2015 for 1.46 billion yuan and upgraded with premium finishes and rare Tesla (TSLA) chargers, the property was sold in late 2024 for about 57% of its original price. A nearby BlackRock fund faced an even harsher outcome, forfeiting two office buildings after missing loan payments, erasing its equity investment. Those towers later changed hands for roughly 680 million yuan nearly half their 2018 purchase price. Distressed deals like these now make up more than one-fifth of China’s commercial property transactions, a record share that underscores just how quickly global optimism has reversed.
Even veteran distressed investors are finding no easy wins. Oaktree Capital, which seized Evergrande’s unfinished Venice on the Sea resort, has resumed partial construction to deliver homes but continues to operate at a loss as local property prices have more than halved since 2019. Fitch Ratings warns that more forced sales could trigger a wider repricing of commercial assets, while Oxford Economics projects that nominal building values may remain lower in 2030 than they were a decade earlier a sobering outlook that hints at a potential lost decade for foreign capital in China’s once-booming real estate market.