Wenyi Zhang
Research expert covering Greater China
China’s office property market has experienced significant growth since the early 2000s. Investment from real estate developers increased around six times within the last 10 years. Until 2014, the area of newly built office properties experienced year-on-year growth. Despite the tremendous increase in office property investment, growth in the market is gradually declining. The office market demonstrated a rising vacancy rate in key cities in 2019. During that year, many aspects of China’s economy were suffering from trade tensions with the United States. The slowing economy also led to a weakening demand from enterprises for office space. The COVID-19 pandemic, and the subsequent strict control measures in China, accelerated the downturn of the market.
Similar to the situation in Mainland China, property development and management companies in Hong Kong were under pressure from shrinking demand. Even though rent and real estate prices were the highest among all major cities in the Asia Pacific region, income from real estate stagnated in many districts in the city. Local real estate companies, such as Champion REIT, had recorded substantial losses in rental income in 2021.
The financing problems of co-working businesses has also exacerbated the decline of the office market in China. Shanghai was the most affected city, being home to the most co-working centers in the country while simultaneously bringing in the highest revenue from co-working office spaces. Co-working companies may need to find a more stable profit model beyond rents and aggressive expansion to avoid a crash as recently experienced by the American real estate company WeWork.
Property developers under pressure
The properties of leading office developers were mainly in larger cities such as Beijing, Shanghai, and Shenzhen. One of the leading developers was SOHO China which has developed around 5.5 million square meters of A-level office buildings in Beijing and Shanghai. Office buildings developed by SOHO China are known for becoming famous landmarks due to their unique modern designs. Despite its leading position in China’s office market, SOHO China has been changing its development strategy by selling some of its real estate assets from individual floors and parking spaces and focusing more on the overseas market.Similar to the situation in Mainland China, property development and management companies in Hong Kong were under pressure from shrinking demand. Even though rent and real estate prices were the highest among all major cities in the Asia Pacific region, income from real estate stagnated in many districts in the city. Local real estate companies, such as Champion REIT, had recorded substantial losses in rental income in 2021.
The financing problems of co-working businesses has also exacerbated the decline of the office market in China. Shanghai was the most affected city, being home to the most co-working centers in the country while simultaneously bringing in the highest revenue from co-working office spaces. Co-working companies may need to find a more stable profit model beyond rents and aggressive expansion to avoid a crash as recently experienced by the American real estate company WeWork.
