The outbreak of the Corona Virus is very important to ascertain what may happen to China’s Gross Domestic Product (GDP) and also the impact on the Commercial Real Estate market. In this research paper, our forecasts find that the Commercial Real Estate downturn in the early stages will reach the 2 percent level (our stress test shows). GDP is set for a 1.25 percent downturn. We explain these results under the theme of uncertainty.

Remembering S.A.R.S (2002 – 2004)

S.A.R.S. or Severe Acute Respiratory Syndrome broke out in China in 2002. This contributed to a severe downturn on the Chinese Real Estate market. See below:


Consider figure 1 which shows an index of all Real Estate activities as growth rates.  The Real Estate market peaked at about 11 percent in 2001. By early 2003, the first outbreak was established in Guangdong. By June of 2003, the total number of S.A.R.S. cases reached 8,000. All activities in the Chinese Real Estate market fell to 6 percent by 2004, a 5 percent fall before a recovery thereafter.


The corona virus has created a significant amount of economic uncertainty. The full effects of the uncertain landscape are just beginning. This research paper seeks to: (i) Provide an understanding of macroeconomic uncertainty; (ii) evaluate why it is important in Economics; (iii) examine how uncertainty affects important indicators such as the real GDP growth rate and the Commercial Real Estate market; (iv) provide a forecast for these important indicators. Since the virus outbreak, the economic landscape remains uncertain with businesses living under the umbrella of ‘uncertain times’, thus the measurement of economic indicators under uncertainty becomes ever more important.

What is economic uncertainty

The phenomenon of macroeconomic uncertainty is a very important issue as uncertainty affects the economy in a variety of channels including: (i) Households, where people who are unsure of the future stop spending therefore reducing consumption; (ii) firms adopt a ‘wait to see’ policy and defer entry into new markets therefore assisting in the decline of productivity and the pursuing of investments and; (iii) financial institutions, where uncertainty results in the increase of risk premia thereby affecting the cost of credit to businesses and individuals. Thus, any interruption to economic progress must be addressed, and by measuring uncertainty and identifying its source, we will be in a more advantageous position to make better decisions.

Measuring macroeconomic uncertainty

There are a variety of scientific methods used to measure economic uncertainty. We use a technique called the Impulse Response Function which simply put, is the measurement of an economic shock such as the corona virus and how the shock changes the economic landscape in, for example Gross Domestic Product (GDP) and the Commercial Real Estate Index (an index constructed to measure the performance of commercial investment property). The measurement is taken in two parts – the strength of the shock and the length of time it takes the economy to get back to its normal state. In later research papers, we will provide individual forecasts for office, retail and industrial warehouses city by city and even district by district but for now, we will provide a quick overview of China.

The impact of the virus on China’s GDP

Figure 2

In figure 2 above, we show our early forecast of how the coronal virus will affect GDP. The solid blue line in the graph is the line of interest. The line shows the impact and the length of time the economy returns to its normal state. Here, we measure the impact (percentage change) and the length of time for the economy to recover. The time is denoted in quarters. We assume that the economic shock is temporary, not permanent. We show that in quarter 1 (one quarter is equal to 3 months), the impact will to be by a 0.5 percent fall in GDP. By quarter 2, the impact will be a 1.25 fall. This, of course, assumes that the government is able to contain the virus. In quarter 3, the economy begins its recovery process before returning to its pre-virus levels in quarter 5. These results take into account external factors from other countries affecting the Chinese Real Estate Market and assumes that they are able to contain the virus so that the shock remains temporary.

The impact of the virus on the Chinese Real Estate market

Figure 3

Figure 3 shows our forecast of the corona virus on the Chinese Commercial Real Estate market. We can see that there is an immediate fall in the in quarter 1 one, with the sharpest impact in quarter 2. The index shows a 2 percent decrease in all Commercial Real Estate related activity. This translates to a much slower growth rates in rental growth – this being a very important measure of the Commercial Real Estate market for people who hold portfolios in the Real Estate market. We will illustrate this is later research city by city and district by district.

It is important to discuss the corona virus in terms of uncertainty because no individual is aware of how long the virus will last. To make forecasts, we use measures of uncertainty to illustrate our findings. In the future, we will be providing both the Commercial and Residential Real Estate market forecasts in much more detail.

分类: Research

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