Design and Construction Services Sector
China is the world’s largest construction market. This market has been heavily impacted by changes in government regulations and policies. Over 2022-2023, expect negative and low growth in the residential and non-residential building sector due to the downturn in the property market. Stimulus-induced infrastructure investment is expected to hold up the industry’s overall growth over the next couple of years.
China’s 14th Five-Year Plan emphasizes new infrastructure projects in transportation, energy, water systems, and new urbanization. According to estimates, overall investment in new infrastructure during the 14th Five-Year Plan period (2021-2025) will reach roughly 27 trillion yuan ($ 4.2 trillion). The new plan emphasized 9 key items for energy efficiency and green building development; it also calls for retrofitting of over 350 million square meters of buildings and the construction of over 50 million square meters of net zero energy consumption buildings.
Real Estate Sector
Since the second half of 2021, China’s real estate market has been rocked by a series of developer defaults, as the combination of housing oversupply, a tightened regulatory environment, and subdued demand squeezed property developers’ balance sheets. Developer defaults have triggered a series of mortgage payment boycotts as homebuyers refuse to pay for unfinished homes (pre-sales of property before construction has been completed are common in China). This has resulted in a 7.8% year-on-year decline in property investment during the first 8 months of 2022 and a 23% year-on-year drop in total floor space sold during the same period. The downturn is especially severe in Tier 2 and Tier 3 cities that have seen overbuilding during the last decade, while demand for real estate in Tier 1 cities such as Beijing, Shanghai, and Shenzhen remain relatively strong. Meanwhile, logistics-related construction has become an increasingly important subsector as the growth of China’s e-commerce industry and export boom have driven demand for new warehouses and other logistics infrastructure.
Despite the drop in new construction, there are potentially significant opportunities for U.S. firms focusing on retrofitting old buildings. Historically, green building has made up a small percentage of China’s construction market, but with growing government backing, green building is set to grow significantly, presenting opportunities for U.S. architecture, construction, and engineering service firms. According to the China Business Review, new regulations require that 70% of new urban buildings be certified green buildings by 2022. Major municipalities, including Shanghai, Beijing, and Shenzhen, plan to exceed that goal, requiring all new commercial buildings to be green buildings. This also includes plans to renovate schools, hospitals, and public buildings to be more energy efficient. The ongoing State Council Green Building Action Plan, launched in 2014, mandates that public facilities such as schools, hospitals, museums, stadiums, affordable housing, and any single building area over 20,000 square meters, such as airports, railway stations, hotels, restaurants, shopping malls, offices, and other large public buildings must meet the green building standards of China’s 3-Star Rating System GBEL (The Green Building Evaluation Label). Additionally, many international health and wellness rankings systems such as LEED, WELL, RESET, and GRESB have also gained traction in the market. On Feb. 9, 2022, the U.S. Green Building Council (USGBC) announced China ranks first in the world on its annual list of Top 10 Countries and Territories for Leadership in Energy and Environmental Design (LEED) in 2021. It took the top spot for certifying the most LEED projects in 2021, with 1,077 certified projects representing more than 14 million square meters (GSM) of certified LEED space. As China develops a greener economy, there will be increased opportunities in low-carbon construction, including green buildings, renewable energy, water conservation, etc.
China’s urbanization rate is among the highest in the world. Data from the American Institute of Architects (AIA) Shanghai reports that by 2025 China will have constructed the equivalent of 10 New York-sized cities.
Under China’s 14th Five-Year Plan, the Ministry of Housing and Urban-Rural Development (MOHURD) issued a notice for the Implementation of Urban Renewal Actions in 2020. While China’s urbanization rate reached 64.7% in 2022, this urban renewal policy aims to develop greener and more efficient cities as the government seeks to improve China’s urban living conditions.
Recent trends in China’s design and construction sector focus on local communities, younger residents, and culture-related projects. In October 2021 MOHURD issued a new restriction on high-rise building limiting the height of buildings in cities with populations of less than 3 million to 150 meters and cities with a population of more than 3 million to 250 meters. Additional new super high-rise buildings cannot exceed 500 meters in height. Technologies such as Building Information Modeling (BIM), green building and smart city solutions, and artificial intelligence applications also play an increasingly important role in increasing buildings’ quality and safety.
Except in rare exceptions, U.S. architectural design companies need to partner with local design firms on projects in China because of the difficulty in obtaining full architectural license. Only a few multinational companies have obtained the “Class A” license by acquiring local companies. Other challenges facing U.S. architecture and design firms in China include increasing domestic competition and a shortage of senior professionals.
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