China’s economic gloom has spilled over into commercial building leasing in many megacities, with Shanghai’s office vacancy rate reaching a two-decade high.
According to CBRE, a real estate consulting firm, the vacancy rate for Grade A offices in Shanghai reached 20.9 percent, up 1.1 percentage points from the previous quarter and 2.8 percentage points from the same period a year earlier. This is the highest level in nearly 20 years.
Data from real estate services provider Cushman & Wakefield show that in the first quarter, Shanghai’s Grade A office space occupancy was 85,800 square meters (about 923,543 square feet), down 9.86 percent from the fourth quarter of last year and 37.49 percent year-on-year.
Oversaturated markets squeeze rental prices. CBRE found that in the first quarter of this year, monthly office rents in Shanghai fell by 0.7 percent quarter-on-quarter to 266 yuan ($36.7) per square meter (about 10.7 square feet) per month.
Zhao Pei (pseudonym), a Shanghai housing agent, told The Epoch Times that Shanghai’s economy has struggled for years, and rental prices for commercial and residential properties are continuing to drop.
“The rental market is dismal, and there are a large amount of vacant offices in first-tier cities.”
Mr. Zhao said he handled an office building lease in central Shanghai’s Xuhui district this year at 5 yuan (0.69 cents)/square meter/day, a 40 percent drop from last year’s 7 yuan (0.97 cents). In the Hongqiao district, the rent price plummeted even more to 1 yuan (0.14 cents).
The affluent coastal city has lost its past prosperity after reeling from years of zero-COVID measures and lockdown policies. “physical stores closed, and foreign companies fled. Many tenants gave up their office space and shifted to the suburbs to reduce operations costs,” according to Mr. Zhao.
State-owned enterprises in Shanghai are also under pressure to cut costs. Some attempt to rent out their offices on preferential terms of one month, three months, or even half a year rent-free, he said.
Mr. Zhao expresses pessimism about the outlook of real estate, “The market is still treading downward, and it is unknown when it will reach the bottom.”
U.S.-based Chinese economist Li Hengqing believes that the high office vacancies will persist and that there is little hope that the Chinese economy will rebound.
Since the onset of the pandemic in early 2020, company closures and the mass withdrawal of foreign capital have contributed to office vacancies in many parts of China.
Growing home-based work patterns also help push the vacancy rate, as per Mr. Li.
Shanghai Prosperity Fades
Shanghai has long been China’s most significant economic center and one of the world’s leading financial hubs.In 2021, Shanghai’s GDP amounted to 4.32 trillion yuan ($600 billion), making it the fourth-largest city in the world in terms of total volume.
However, Shanghai lost its luster due to the three-year epidemic lockdown control and China’s overall economic downturn.
Hongqiao district in Shanghai was a must-see for real estate companies, with more than 50 companies working there at its peak. Now, with the collapse of real estate, only perennial vacant offices are left, presenting a depressed business climate.
Foreign companies also sell their commercial office buildings in Shanghai before leaving the city. In January, global capital management giant BlackRock sold its entire office building in Shanghai at a 30 percent discount.
“China’s real estate-related demands, both for home and for commercial use, are very weak … Given the office vacancy rate is indicative of an economy, the Chinese economy, including megacities like Shanghai, can be expected to get worse year by year,” Mr. Li suggests.
