Investment Rating - The report indicates a cautious outlook on the commercial real estate sector in China, highlighting significant inventory pressure and credit risks for certain companies [2]. Core Insights - The commercial real estate market in China has experienced severe inventory pressure compared to the residential market, with the inventory multiple for commercial properties exceeding 12 times as of November 2025, indicating a significant imbalance in supply and demand [5][7]. - The report emphasizes the need for a transformation in commercial real estate companies towards lower leverage, specialization, and differentiation, particularly for those with high asset constraints and non-core area investments [2]. - The recovery of the retail property market is supported by the resilience of consumer spending in China, while the office market faces substantial challenges due to oversupply and prolonged inventory adjustments [2][12]. Summary by Sections 1. Inventory Pressure in Commercial Real Estate - The inventory multiple for commercial properties has been on the rise, reaching over 12 times by November 2025, compared to residential properties which have also seen an increase to nearly 7 times [5][7]. - The office sector specifically shows a troubling inventory multiple nearing 15 times, indicating a significant oversupply situation [11]. 2. Price Dynamics and Supply-Demand Balance - The report discusses how asset prices in cities like Beijing and Shanghai have deviated from fundamentals, leading to high inventory multiples, while cities like Chongqing have maintained more stable prices and inventory levels [12][21]. - The historical context of Japan's real estate bubble is referenced, drawing parallels to the current situation in China, where rapid price increases have led to significant market imbalances [22][23]. 3. Recovery Path for Commercial Real Estate - The report outlines that the recovery of the commercial real estate market in China will require a prolonged period of inventory reduction and supply control, similar to Japan's experience post-bubble [29][41]. - It highlights that while Japan's retail market faced a prolonged downturn, China's retail sector shows signs of resilience, with consumer spending still holding up despite challenges [30][37]. 4. Corporate Strategies and Market Dynamics - The report notes that many residential developers have ventured into commercial real estate, leading to a mixed performance in the sector as companies face pressures to adapt to changing market conditions [53]. - It emphasizes the importance of learning from Japan's real estate recovery strategies, particularly the role of financial instruments like J-REITs in stabilizing the market [67].