Exit of P2P lenders from Shanghai office market poses a challenge

The recent collapse and exodus of numerous peer-to-peer lending (P2P) companies in China after a government crackdown on fraud has rattled the Shanghai CBD office market and may “pose a challenge for landlords”, experts say.

In the second quarter of the year, supply spiked to a 10-year high, according to real estate firm Colliers International, as overall vacancy rates in the area increased 3.2 per cent quarter on quarter to 7.2 per cent.

Colliers attributed the recent upturn in office supply to “widespread retreats from tenants in the peer-to-peer lending (P2P) sector, which came under scrutiny from the government in recent months”.

Albert Lau, managing director at global real estate services provider Savills, noted that due to the “slowdown in growth of P2P companies due to the government crackdown, landlords are becoming more cautious towards these companies”.

However, Sam Xie, senior director at CBRE Research in Eastern China, believes that despite the closing of some P2P companies and the government’s tighter regulatory environment on the sector, “the negative impact upon the Shanghai market is manageable”.

According to Shanghai-based researcher Yingcan Group, the number of P2P platforms under “normal operation” in China stood at 2,349 at the end of June, down more than 10 per cent since their peak last November.

The drop in number of operating P2P firms came after a government body under the Chinese State Council launched a rectification programme in April to combat the country’s unregulated internet finance industry and to root out fraud in online P2P platforms.

In December last year one of China’s biggest P2P platforms, Ezubao, was found to have defrauded 900,000 investors out of more than 50 billion yuan (HK$58.2 billion) by offering high interest rates which it was unable to pay.

Lau said that despite P2P companies slowing down because of the government crackdown, “it will not be a major disruption to the market”. Rather, the situation will make “landlords more selective to this type of tenant”, particularly in Shanghai CBD locations, according to Xie.

Michael Wu, senior director of office services in East China at Colliers, said that the retreat of P2P tenants raised vacancy levels slightly. “It will present opportunities for tenants who have good reputations, who may gain a strong negotiating position with landlords of desirable buildings,” he said.

Citing research from CBRE, Xie said, “The vacated space has been replenished by demand from other financial companies, high-end manufacturing tenants and professional services firms.”

Separately, a new value added tax (VAT) structure in the real estate industry was implemented in May, though Colliers said the effects to date have been marginal and it is too early to assess what long term impact the change will have on landlords and tenants.