Half of Manhattan's New Building 'Hudson Yards' Vacant
Beijing Office Vacancy Rate 18.3% in Q2
Skyscrapers in major cities around the world are shivering in the face of a vacancy freeze. The combination of interest rate hikes, economic slowdown, and the rise of remote work is gradually increasing the number of empty office spaces.
Global consulting firm McKinsey Global Institute estimated in a report titled "The Impact of the Pandemic on the Real Estate Market" on the 13th (local time) that by 2030, the valuation loss of commercial office buildings in nine major cities including New York, Paris, London, and Beijing will reach $800 billion (approximately 1,020 trillion KRW). This represents a 26% drop compared to asset values in 2019. McKinsey predicted that if additional interest rate hikes and other variables occur, the decline could expand to as much as 42%. The sharp increase in office vacancy rates and falling rents have significantly reduced asset values.
Demand for commercial real estate has greatly decreased due to the combined effects of the spread of remote work and high interest rates. McKinsey expects that demand for commercial real estate will remain below pre-pandemic levels for several years to come. McKinsey explained, "The proportion of workers commuting to the office daily has dropped to 37% compared to pre-pandemic levels." According to Green Street, a real estate data analytics firm, the value of commercial real estate in the United States has fallen by 27% since the Federal Reserve (Fed), the U.S. central bank, began raising interest rates in March last year.
Hudson Yards, a landmark in New York built on the site of a railroad yard near the Hudson River in Manhattan, has been open for four years, but half of its 92-story building was vacant as of the end of last month. Although luxury stores such as Cartier and Coach, upscale restaurants, and office spaces for global companies like L'Or?al and Meta are located there, the Wall Street Journal (WSJ) reported that rents are lower than surrounding market rates due to the inability to fill empty offices.
Office vacancy rates in Beijing, the capital of China, also reached their highest level in 13 years. On this day, Chinese economic media Caixin cited statistics from global real estate services company Savills, reporting that Beijing's office vacancy rate in the second quarter of this year was 18.3%, up 1.5 percentage points from the previous quarter. This is the highest level in over 13 years since the first quarter of 2010 (18.4%).
As some tenants reduced their leased space or moved out, the net absorption in Beijing's office market recorded a negative figure. A negative net absorption means that the area vacated by tenants during the reporting period exceeded the newly leased area. According to Savills, this figure has been negative for three consecutive quarters, recording -13,500 square meters in the second quarter of this year. The cumulative figure for the first half of the year reached -16,700 square meters. A researcher from a market institution explained, "While there have been quarters with negative net absorption in Beijing's office market, this is the first time that the cumulative figure for the first half of the year has been negative since the statistics for Beijing's office market began."
The commercial real estate market is unlikely to rebound anytime soon. After the sharp decline in commercial real estate values following the 2008 global financial crisis, it took six years for recovery. Richard Barkham, Global Head of Research at commercial real estate services firm CBRE, said, "In this downturn, the recovery period could last up to 10 years."
© The Asia Business Daily(www.asiae.co.kr). All rights reserved.
