I saw a report today that China's office market is cooling down much faster than the residential market. A large number of office buildings in Beijing, Shanghai, Shenzhen and other places are vacant. The vacancy rate has reached a new high in more than 10 years, while the rental price has reached a new low in more than 10 years. Some of the once top-notch office buildings in first-tier cities have lost their former prosperity and grandeur after the closure of a large number of office areas.
Shenzhen currently faces the highest vacancy rate, with rental prices having dropped by 30% compared to the previous years, returning to levels seen 11 years ago. In Beijing, the average rent decreased by over 9% last year. However, based on actual transaction prices, some areas have experienced a significant 50% reduction in rental prices. For instance, in a popular office district in Wangjing, the rental price per square meter per day has fallen from 7 yuan in the past two years to the current 3.5 yuan.
From 2021 to 2023, the net absorption of Grade A office space in Beijing plummeted from 1.01 million square meters to 127,000 square meters, marking an 87% decline. In Shanghai, the figure dropped from 1.36 million square meters to 390,000 square meters, representing a 71% decrease. Similarly, in Shenzhen, the net absorption shrank from 840,000 square meters to 220,000 square meters, indicating a 74% decline. Based on this set of data, it is evident that the demand for Grade A office space in these three major first-tier cities has sharply contracted by 70-90% over the past two years.
The Zhongguancun and Wangjing areas in Beijing are the two most concentrated hubs for internet companies. However, in recent years, many internet enterprises have started to withdraw. Companies such as ByteDance, Microsoft, iQiyi, among others, have terminated their leases in Zhongguancun, while Meituan has gone a step further by prematurely vacating 30,000 square meters in Wangjing.
Furthermore, the withdrawal of foreign capital has also, to a certain extent, reduced the demand for office spaces. Some of these departures are attributed to the rising operational costs and increased profit pressures in China, while others are due to geopolitical factors prompting an exit from the Chinese market. Although China has recently implemented various measures to attract foreign investment, there is a possibility that some foreign capital may return to the Chinese market. However, those foreign entities that left due to geopolitical reasons may find it challenging to return to China in the short term. For the office space market, the demand gap created by the departure of foreign clients may be difficult to fill in the short term.
In the past few years of the epidemic, the economy has been in such a state that China has undergone a complete transformation. The economy has declined sharply, and the service industry has also declined significantly. This reflects from the side that China's so-called transformation is extremely difficult.