Is the vacancy rate of office buildings in Shanghai too high? May I take it calmly

Release time:Apr 16, 2024 21:50 PM

The quality of the office market is not only a reflection of the real estate market, but also a barometer of economic development and stability. Recently, the Shanghai office building market has once again received great attention. According to data from Gaoli International, in the second quarter of 2023, the rent of office buildings in Shanghai decreased month on month for five consecutive quarters. The vacancy rate of office buildings in the sub central area is 23.9%, and the vacancy rate in emerging areas is 23.6%. According to Cushman&Wakefield, the overall vacancy rate of Grade A office buildings in Shanghai climbed to 18.59% in the second quarter. According to monitoring data from Kerui Asset Management, the vacancy rate of Grade A office buildings in Shanghai reached 19.6% in the second quarter.

If we look at the international vacancy rate warning line of 20%, the Shanghai office market is not optimistic. But this does not mean that one should blindly decline. Is the vacancy rate of office buildings too high? It is still necessary to analyze the relationship between the two floors——

One is the relationship between long-term trends and short-term phenomena. According to public data statistics, the vacancy rate of office buildings in Shanghai is relatively stable throughout the year, maintaining between 15% and 18%. When the market experiences high supply and low absorption, it can lead to a short-term phenomenon of high vacancy rates. The ratio of supply to absorption in the first half of this year was about 2.4:1, which did not reach a historical high. On the other hand, the average annual growth rate of newly established market entities in Shanghai remains around 12%, and there is still significant room for market demand for office buildings. Data shows that from 2018 to 2021, while the average annual growth rate of newly established enterprises increased, the vacancy rate of office buildings decreased year-on-year. The growth rate of newly established market entities was inversely correlated with the vacancy rate of office buildings.

The second is the relationship between overall industry adjustments and changes in the layout of some enterprises. The tenants of office buildings are generally in industries such as finance, professional services, and TMT. If the industry as a whole shrinks and enterprises withdraw leases on a large scale, it is easy to encounter significant market risks. According to relevant institutions, in the second quarter of 2023, key industries such as finance, professional services, electronic information technology, and retail trade in Shanghai accounted for 78% of the total leasing area, and the industry as a whole remained relatively stable. The rental rate of high-quality office buildings in mature commercial districts is still relatively high. The high vacancy rate of office buildings in some areas, or due to aging building facilities, high comprehensive costs, incomplete supporting facilities, and the diversion of emerging business districts, are tactical adjustments made by enterprises based on changes in the market environment.

Based on the current situation, the vacancy rate of office buildings in Shanghai is still within a reasonable range. Of course, with the further supply of office buildings planned in some key areas, it is necessary to provide early warning and prevention of potential market risks. To prevent risks, multiple measures should be taken simultaneously and comprehensively, even as an opportunity for adjustment, transformation, and mechanism innovation.

For example, pilot projects for mixed use of office buildings can be actively carried out to explore the transformation of commercial and residential properties. Based on Shanghai's urban renewal policies and regional development needs, pilot mixed use projects will be carried out for some eligible office buildings. The central urban area can adjust old office buildings into mixed commercial, residential, and other innovative functions, introducing hotels, residences, or more. For areas with excess supply of office buildings, we support the adjustment of eligible office buildings to long-term rental apartments or intelligent, precision production industrial buildings to ensure the introduction of local talents and the cultivation of emerging industries.

At the same time, it can also encourage development companies to improve their comprehensive operational capabilities, follow industrial operation thinking, and enhance the level of office building industry agglomeration. The development and operation of office buildings will be linked with industrial cultivation and urban function improvement. By gathering high-tech enterprises that meet the regional development orientation, are technologically advanced and industry leading, the urban innovation policy source and industry leading function will be improved, and the high-quality development of office buildings and their surrounding areas will be promoted according to the logic of "gathering enterprises - cultivating industries - improving ecology".

From the perspective of planning and management, there should be a city wide coordination mechanism to strengthen hierarchical and classified supply management. Relevant departments such as city and district land planning, housing and urban construction should establish a normalized communication and coordination mechanism, sort out key development areas, business districts, etc., understand the bottom line, control the total amount of phased development, and avoid problems such as unreasonable layout and homogeneous positioning. For office buildings developed on state-owned asset platforms, measures such as dividing supply into loop lines and hierarchical supply can be taken, such as decreasing supply according to internal, central, and external loop lines, dynamically adjusting supply cycles and listing rhythms, and reducing the impact of centralized supply on the overall market. Focus on the "industrial to commercial" projects in the renewal of existing land, appropriately control the supply of C65 research and development land, and support the transformation of industrial land from industry to industry.

Maintaining a certain vacancy rate is beneficial for creating a fair market supply and demand relationship, and for developers, lessees, and functional departments to make reasonable decisions. We don't need to be overly nervous about the current vacancy rate of office buildings, and we believe that the market will solve the problem.

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