Commercial property faces yield reckoning

<p>Kia ora,</p><p>Welcome to Monday’s Economy Watch where we follow the economic events and trends that affect Aotearoa/New Zealand.</p><p>I'm David Chaston and this is the international edition from Interest.co.nz.</p><p>And today we lead with news investors are getting nervous about their exposure to office buildings in the commercial real estate sector.</p><p>But first, after retreating over the past year, <a href="http://www.stats.gov.cn/sj/zxfb/202307/t20230715_1941238.html" target="_blank"><strong>average new home prices</strong></a> in China's 70 major cities were unchanged year-on-year in June. There were rises, including in Beijing, Chongqing, Shanghai, and Tianjin. But there were falls in both Shenzhen and Guangzhou, along with 40 other large cities. Prices for home resales went backwards with only 6 of the 70 recording any gains or standstills. But the official falls are nothing like New Zealand's retreat. The worst Chinese city is only recording a -7.5% year-on-year fall.</p><p>Later today we will get the PBoC 1yr Medium-term Lending Facility rate announcement and that may give clues of new stimulus for the Chinese economy, one that may be helpful to the property development sector.</p><p>We should also note that some zombie property developers are now being <a href="https://www.bloomberg.com/news/articles/2023-06-06/a-wave-of-delisting-faces-chinese-developers-in-risk-to-funding?in_source=embedded-checkout-banner" target="_blank"><strong>delisted</strong></a> from local stock exchanges. And things are not getting any easier for commercial landlords there either. In Shanghai, overbuilding means <a href="https://www.caixin.com/2023-07-14/102075874.html" target="_blank"><strong>vacancy rates are rising and rents are dropping</strong></a> for this tier-1 city.</p><p>In the US there has been a surprisingly positive shift in consumer sentiment. The widely-respected <a href="http://www.sca.isr.umich.edu/" target="_blank"><strong>University of Michigan survey</strong></a> improved for a second month in July