Office vacancy rates in China’s commercial hubs surge to highest level on record as rents drop amid pandemic headwinds

Office rents continue to be battered by the Covid-19 pandemic, and vacancy rates are on the rise in mainland China. A record number of offices have been left empty in the country’s four largest commercial hubs, while rents have declined for six consecutive quarters.

Office vacancy rates in Beijing, Shanghai, Guangzhou and Shenzhen rose to 15 per cent on average – the highest level on record – in the first quarter, according to data from the China Real Estate Information Corporation (CRIC).

“The basic operations of most companies have not been affected, but some might suspend or delay their expansion plans … thus new [office space] supply in the market will not be digested [fast enough],” said Martin Wong, research and consultancy associate director for Greater China at real estate consultancy Knight Frank. The total new supply of office buildings in tier 1 cities amounted to 448,000 square metres in the first quarter, according to CRIC.

About 7 million square metres – about 12 times the total space in Shanghai Tower, mainland China’s highest building, and more than 18 times the total space in Shanghai World Financial Centre – of Grade A office space was lying empty in the four tier 1 cities by the end of the first quarter.

The increase in vacancy rate comes as China reported its first quarterly contraction in gross domestic product since records began, amid the pandemic. Its GDP fell 6.8 per cent in the first quarter, with industrial production and the services industry the hardest hit.

As a result, in the January to March period, vacancy rates for Grade A office buildings in Shenzhen and Shanghai rose to 22.3 per cent and 21.1 per cent, respectively. In Beijing, 12.6 per cent of office space was unoccupied, while Guangzhou was more resilient, with only 4.8 per cent of its offices vacant.