In 2023, residential construction in China has experienced a significant decline, with a 26%decrease year to date compared to the previous year and a staggering 58% drop compared to 2019. This downturn has had a profound impact on the demand for softwood timber and its associated prices. The pressing question is whether the construction sector will rebound, and if so, to what extent?In our previous posts, we showed that the future of residential construction in China will be shaped by several key factors, including population growth,rural-to-urban migration, and the need for expanded living spaces. In thispost, we delve into another pivotal factor influencing construction activity:building renewals.Building renewals are when aging structures are replaced due to wear and tearor other deteriorating conditions. Generally, older buildings have a designlife of approximately 50 years, while more modern constructions boast a designlife of 70 years or even longer. However, not all buildings reach the end oftheir design life; some are replaced earlier to enhance market returns orcomply with urban renewal mandates.

To estimate the rate of building renewals, we employed appropriate depreciationschedules on the existing building stock. In 2020, renewals were estimated tohave accounted for 20% of the total construction area and have since been on asteady increase. Eventually, as urban population growth levels off and percapita demand for living space stabilizes, total building stock will reach its zenith.At this point, construction will be primarily driven by renewals. The combined total of renewals, improvements, and urban population growth shows underlying demand for construction to be well above current levels. Thelong-term outlook, however, is for steadily decreasing construction. The demand for residential housing in China is multifaceted, influenced bydemographic, social, cultural, and technological factors. By considering theevolution of urban population growth, income levels, and building renewals overtime, we can model the trajectory of future construction and derive itsconsequent impact on the demand for wood products. This valuable insight empowers investors with a clearer understanding of future timber demand and its contribution to forest values.We provide comprehensive insights into the evolving landscape of timber demandand supply. Contact us for more information on our outlook reports and forecasts.