Beijing Office Real Estate Vacancy Hits Largest Scale in 8 Years
Companies Cut Costs Amid Economic Downturn
Rent and Property Values Expected to Continue Declining
The real estate downturn that began in China's housing market is spreading to the commercial real estate markets in first-tier cities such as Beijing and Shanghai.
On the 2nd, British real estate consulting firm Savills surveyed the leasing contracts of Grade A office real estate in Shanghai, the economic hub of China, for the second quarter of this year. The results showed that the number of contracts terminated due to expiration and other reasons exceeded the number of newly signed contracts. This is the first time in eight years since 2015 that the number of lease terminations has surpassed new contracts. The vacancy area of Shanghai office real estate in the second quarter was recorded at 7,445㎡.
The vacancy area of Grade A office real estate in Beijing increased for three consecutive quarters, reaching 13,461㎡ in the second quarter. This is also the largest vacancy since 2015.
The expansion of office vacancies in major Chinese cities is analyzed as a result of companies cutting costs such as rent amid sluggish consumption, declining exports, and a sluggish real estate market, as the Chinese economy moves beyond 'recession' toward a 'crisis.' Mr. Huang Libei, who runs a food and beverage import business, moved his office to Xujiahui in southwest Shanghai in February after the landlord demanded a rent increase. The office rent is 54,000 yuan per month (about 9.2 million KRW), which is 16% less than before. He said, "Rent is one of the very few costs we can cut."
As companies turn their eyes to offices with cheaper rent, commercial real estate rents are also expected to continue declining. U.S. real estate advisory firm CBRE predicted, "As demand for office real estate in China's mainland first-tier cities (Beijing, Shanghai, Guangzhou, Shenzhen) slows down, rents will fall further."
The supply glut of office real estate is also expected to lead to price declines. The completion scale of office buildings in China from January to July this year was 11.64 million ㎡, a 22% increase compared to the same period last year. On the other hand, office real estate transaction volume decreased by 18.3% during the same period, and transaction value fell by 20.2%. Unsold office real estate reached 47.6 million ㎡, increasing by 21.9% compared to a year ago.
Accordingly, commercial real estate prices are also falling. CBRE estimated that office real estate prices in China's first-tier cities have dropped by about 15-20% since 2018.
Chinese real estate developers are also taking a direct hit. There are concerns that cases similar to the private real estate developer Biguiyuan, which defaulted last month due to the sluggish housing market, could emerge among commercial real estate developers as well.
SOHO China, a Chinese commercial real estate developer, expressed concern, saying, "The market began to cool sharply again from the second quarter," and "rents and office occupancy rates are expected to face continuous downward pressure." SOHO China's net profit for the first half of the year was 13.61 million yuan (about 2.475 billion KRW), shrinking 93% compared to the same period last year.
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