Currently, office vacancy rates in major Chinese cities such as Beijing, Shanghai, Guangzhou, and Shenzhen are on the rise, even higher than during the strict lockdown measures of the pandemic period, while rents are decreasing, indicating that China’s economic slowdown is damaging commercial confidence.
The commercial real estate market in China still faces significant issues of oversupply. Vacancy rates in some cities are approaching the highest levels seen in the past 20 years, while rents continue to plummet.
According to a report by the Financial Times on August 30, in overseas major cities, the rise of flexible working arrangements has led to some office vacancies, but in Chinese cities, the number of people working from home is much lower, with analysts pointing to the economic slowdown as the main driver.
Data from three real estate institutions shows that in June this year, at least one-fifth of the high-end office spaces in Shenzhen were empty, while the office vacancy rates in Beijing, Guangzhou, and Shanghai were higher than in June 2022. Overall, rents are at least 10% lower than two years ago.
“The biggest challenge remains the slowing growth of the Chinese economy, leading to a significant reduction in market demand,” Lucia Leung, Deputy Director of Research and Consultancy for Colliers Greater China, told the Financial Times.
According to GlobalData, the vacancy rate for prime office spaces in Shenzhen was 27% in June, higher than the 20% in June 2022, with monthly rents dropping by 15%, aligning with the trends observed by Colliers and Cushman & Wakefield.
These three institutions have also recorded similar increases in vacancy rates in other cities. Colliers reported that as of June, the vacancy rate for high-end offices in Shanghai was close to 21%, higher than the 14% in June two years ago. Their data shows a 13% year-on-year rent decline.
Cushman & Wakefield estimates the vacancy rate for prime office spaces in Guangzhou was 21% in June, while in Beijing, it was 12%, higher than the 16% and 10% in 2022, respectively.
Meanwhile, new constructions continue to enter the market. In April this year, Knight Frank indicated that the vacancy rate is expected to remain high in the next 12 months.
Leung stated that the environment in China still “poses challenges,” with overall vacancy rates expected to continue to rise this year, and rents projected to decrease by 8% to 10% year-on-year.
Hong Kong-based Hang Lung Properties revealed that in the six months ending in June, due to weakened demand, its office leasing income in mainland China decreased by 4% to 556 million RMB. The vacancy rate at its flagship office building in Shanghai jumped from 2% in June last year to 12% in June this year.