With vacancies rising, rents are falling for Beijing’s premium office space

VACANCIES have been rising and rents falling in Beijing’s office buildings over the fourth quarter, as businesses cut back on spending amid fallout from the pandemic, industry data shows.

China’s deteriorating commercial property shows how the country’s real estate crisis has gone beyond the residential market, which has suffered from a protracted sales slump since last year.

In the Chinese capital, the vacancy rate for premium, or Grade A, offices rose 1.4 percentage points to 16 per cent in Q4 from the previous three months, said a Tuesday (Dec 27) report by Cushman & Wakefield, a real estate consultancy.

Corporate clients cancelled leases covering 112,000 square metres (sq m) more office space than they rented in Q4, the Cushman & Wakefield data shows. For the year, the total amount of leased office space was down 79 per cent at 173,000 sq m.

Layoffs have led tech firms to cancel some of their leases, said Wei Dong, a policy analyst at Cushman & Wakefield. These companies held the leases on 39.3 per cent of Beijing’s office space this year, down from 55.5 per cent in 2021, said the report.

Two areas teeming with tech companies – Zhongguancun in Haidian district and Wangjing in Chaoyang district – have suffered larger drops in rent than other parts of Beijing, showed data from Colliers, another real estate consultancy.

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In Q4, the average monthly rent for premium office space in Beijing fell 1.7 per cent from the previous three-month period, Colliers data shows.

“When the vacancy rate goes up, the rent falls,” Wei said, adding that about 14.6 per cent of Zhongguancun’s office space was left vacant in Q4, compared with an average vacancy rate for the area of 5 per cent over the past five years.

With Covid restrictions still in place through much of Q4, companies were less than optimistic about their business prospects, so they cut back on their rent budgets, said Charles Yan, a manager at Colliers.

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Over the past year, some tech firms, including giants such as Tencent Holdings, have laid off workers as part of efforts to slash costs as both Covid restrictions and tightened regulatory oversight put pressure on their businesses.

The Cushman & Wakefield and Colliers experts predicted that demand for commercial real estate in China will pick up in the middle of next year as the economy recovers from its now abandoned zero-Covid policy.

In the coming year, new office supply and reduced rent will provide tenants with better lease terms, and market turnover will get a boost, said Lian Fengzhe, a manager at Cushman & Wakefield. CAIXIN GLOBAL