Recent data shows that the vacancy rate of office buildings in Shanghai has exceeded 20%, reaching a new high. The oversupply situation highlights the economic downturn in Shanghai.
According to the latest statistics from the real estate consulting firm CBRE Group Inc., the vacancy rate of Grade A office buildings in Shanghai has reached 20.9%, an increase of 1.1 percentage points from the previous quarter and 2.8 percentage points from the same period last year, reaching the highest level in nearly 20 years.
Data from the commercial real estate service company Cushman & Wakefield Inc. also indicates that in the first quarter of this year, the net absorption of Grade A office buildings in Shanghai was 85,800 square meters, down 9.86% from the fourth quarter of last year and down 37.49% year-on-year.
The oversupply situation has led to a decrease in rental prices. According to CBRE Group Inc., in the first quarter, the monthly rent for office buildings in Shanghai decreased by 0.7% compared to the previous quarter, to 266 yuan per square meter per month.
Zhao Pei, a real estate agent in Shanghai, mentioned that during the pandemic, he started a leasing company with a partner in 2017. He stated, “Vacancy rates in major cities are high. In recent years, due to the poor economy, rents have been decreasing overall. Not only office rents in Shanghai are cheap, but residential prices have also dropped.”
Zhao Pei expressed that Shanghai has lost its past prosperity; the pandemic led to the closure of many physical stores and the subsequent departure of numerous foreign enterprises. Currently, office rents have decreased across the board. In the Xuhui district, a building’s rental price dropped from 7 yuan per square meter per day last year to 5 yuan this year. In the Hongqiao district, there are rental prices as low as 1 yuan.
He also mentioned that state-owned enterprises are now offering rent-free services, ranging from one month to half a year. This is a measure taken by the authorities to stimulate economic recovery by easing requirements for businesses.
Due to the economic downturn, some large corporations find it challenging to afford high office rents and are relocating from downtown Shanghai to the suburbs, where rents are at least half the price. The overall market trend is still declining, with uncertainty about when it will hit bottom.
Shanghai has been known as China’s largest economic and financial center since the Republican era and one of the world’s major financial centers, earning the title of “Great Shanghai.” In 2021, its GDP reached 4.32 trillion yuan, ranking fourth in the global city scale.
However, due to factors such as three years of pandemic restrictions and China’s overall economic decline, Shanghai has lost its former prosperity.
Recently, Dai Yuwen, a finance writer who has lived in Shanghai for over a decade, posted a video on his Weibo and WeChat accounts, listing ten economic recession phenomena appearing in Shanghai this year:
1. Office workers bringing their own meals;
2. No discussions about changing jobs within social groups;
3. Second-hand housing sales stagnating;
4. Many malls in downtown Shanghai closing down— the 30-year-old Pacific Department Store in the Xujiahui district shuttering;
5. Office rents being practically given away;
6. Easy taxi availability, often with luxury cars;
7. Fast delivery speeds for takeout meals;
8. Increase in daily loan solicitation calls;
9. Few people discussing overseas travel;
10. Decrease in the number of foreigners.
The Weibo account “Rebellious Young Master” has been permanently suspended.
Shanghai’s Hongqiao area was once a battleground for real estate companies, with over 50 companies operating there at its peak. However, with the real estate market collapse, only vacant offices and a relatively subdued commercial environment remain.
Foreign enterprises are selling their commercial office buildings in Shanghai as they withdraw from the city. In January this year, global asset manager BlackRock sold an entire office building in Shanghai at a 30% discount, shocking the market at that time.
For domestic enterprises holding commercial office assets, mostly developers and state-owned enterprises, they are facing asset devaluation. According to a report by NetEase, a real estate company in the Hongqiao business district owns an office building evaluated at 1 billion yuan. While the company easily obtained an 800 million yuan loan against the building in the past, the current market value of the building is only 500 million yuan, indicating that selling it would lead to insolvency, turning their once high-quality asset into a hot potato.
For many state-owned enterprises, holding existing commercial office assets is a major burden. They face the dilemma of asset depreciation if they hold on to it or the risk of “loss of state-owned assets” if they dispose of it hastily.
Chinese economist Li Hengqing, of Chinese descent, analyzing the current economic situation in Shanghai, especially the phenomenon of record-high office vacancy rates, believes that the vacancy rate will continue to rise, with little hope for Shanghai’s economic recovery.
He expressed that the current economic situation in Shanghai is grim, with many businesses closing down due to the pandemic and the departure of foreign enterprises, leading to an inevitable increase in vacancy rates. After the outbreak of the pandemic, many companies switched to remote work, which is also a significant factor contributing to the rise in vacancy rates.
Li Hengqing stated that in the past two to three years, some large office buildings were completed and put up for lease, increasing the supply of high-rise buildings. However, the actual demand from companies looking to rent office spaces is very limited. Currently, both residential and office-related demands in China are significantly weak.
He further mentioned that the vacancy rate is an economic indicator, and with China’s economy deteriorating year by year, there is no sign of a stable and positive trend. This is a very unfortunate situation.
“The Chinese economy is unlikely to rebound, and office vacancy rates will continue to rise,” he said.