Office Vacancies in China’s First-Tier Cities Reach Highest in Decade

Buildings in Shenzhen, Guangdong Province, China in this file photo. (Peter Parks/AFP/Getty Images)

As China posted its slowest economic growth in nearly three decades, office buildings in big cities struggled with record-high vacancy rates in 2019.

The office vacancies in the four first-tier cities—Beijing, Shanghai, Shenzhen, and Guangzhou—have all reached the highest in nearly 10 years, each with vacancy rates around 10 percent. The situation in second-tier cities is even worse, with vacancy rates around 28 percent, real estate services company Cushman & Wakefield stated.

Among A-class office buildings, Beijing’s vacancy rate was roughly 16 percent in 2019, the highest since 2010; and Shenzhen’s vacancy rate was about 22 percent, a 6.3 percent increase from 2018.

Shanghai’s A-class office vacancy rate hit a record high of about 19 percent, according to a report released by Colliers International.

In the fourth quarter, 75 percent of office buildings in first-tier cities saw their rents drop from the third quarter, based on data from China Index Academy.

Take NEO Tower, a skyscraper office complex in Shenzhen, as an example. The monthly rent for office space was 260 yuan ($37.30) per square meter (about 11 square feet) in 2018, but fell to 170 yuan ($24.40), a 34.6 percent drop the following year, according to Chinese news portal Sohu.

Jiang Peng, deputy director of Colliers International’s market research division, told the China Times that the main factors for last year’s decline in office demand in Shanghai include the slowdown of the economy, pressure from deleveraging, and uncertainties from the U.S.-China trade friction. In addition, the overall office space supply was higher than usual in 2019.

An unidentified real estate professional who spoke to Chinese state media said he believes that bankrupt companies in the financial and service sectors, and early-stage venture capital firms are the main reasons for the high vacancy rates, since these companies are very sensitive to economic downturns.

Record High New Construction, Low Occupancy

At the same time, numerous landmark skyscraper office buildings made their debut in many of China’s first- and second-tier cities in 2019. For instance, Beijing’s CITIC Tower, hailed as the tallest building in the capital, the fourth-tallest in China, and the eighth-tallest in the world, passed completion inspection in November 2019.

The tower is 528 meters (1,732 feet) tall, with 108 stories above ground and seven underground stories, providing a total of 437,000 square meters (4.70 million square feet) of usable space, enough to accommodate 12,000 employees.

According to various sources from Chinese state media, newly completed A-class buildings in 2019 contribute about 1.02 million square meters (about 11 million square feet) of office space in Beijing, which account for roughly 10 percent of the total A-class space in the city.

Similarly, when Shenzhen’s A-class office vacancy reached 22.4 percent in the third quarter of 2019, 11 new office buildings were released on the market, which added 691,000 square meters (about 7.44 million square feet) of office space, 3.1 times that of the same period in 2018.

In Shanghai, it’s estimated that 2 million square meters (about 21.5 million square feet) of A-class office space will be added to the market in 2020.