Recent data shows that the ghost city phenomenon, previously seen in second-tier cities, has begun to spread to first-tier cities such as North, Guangzhou and Shenzhen, and it is not residential housing that is vacant, but office buildings, with vacancy rates of up to 30% to 40% and rents picking up even more, sounding the alarm for China’s economy.
Let’s look at the capital city of Beijing first. According to the Beijing real estate Market Research Report for the third quarter of 2020 released by Savills, in the first three quarters of last year, absorption in the Beijing office market plunged 47% compared to the same period last year, and the city’s vacancy rate continued to move higher, at a high of 15%, up 5.9 percentage points year-on-year. The average rent for Grade A offices, meanwhile, slipped to RMB 354.8 per square meter per month, down 1.3% and 3.5% year-on-year, respectively.
Savills Research expects that the rapid decline in rents will not end immediately due to the controlled epidemic, and that the average rents of office buildings in Beijing will remain in a downward cycle for some time to come.
According to DTZ’s report, even in Beijing’s Financial Street, where rents have always been strong, Grade A office rents have fallen by 3.7% year-on-year.
However, the situation in Shanghai, the “Magic City”, is more serious than in Beijing. According to CCTV Finance, the overall vacancy rate of some office buildings in the North Bund area of Hongkou District in Shanghai is around 40%, while the vacancy rate of office buildings in the Qiantan and Da Hongqiao areas is also close to 40%.
As for Shenzhen, Jones Lang LaSalle reported a vacancy rate of 25.6% in the fourth quarter, but some industry insiders said the actual vacancy rate reached 40%. What is even more worrying is that Shenzhen will continue to have a large supply of office space in the next five years. It is possible that more than half of the office buildings seen in the future will be empty. And at present, many owners in Shenzhen, and even a price war between the rent to grab customers.
Among the four major first-tier cities, Guangzhou is the only office market that maintains a low vacancy rate, but the actual reason, according to outside estimates, is that the supply of office space in Guangzhou is not that high.
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