Chinese Office Vacancy Worse Than U.S., Despite Leading In RTO

As the office market in the U.S. continues to grapple with vacancy rates nearing 20%, China is feeling the burn even worse.

Vacancy spiked to nearly 24% in office towers across 18 major Chinese cities as of June, The Wall Street Journal reported Tuesday, citing CBRE data. Comparatively, the U.S. saw office vacancy at 18.2% — a three-decade high.

China's higher vacancy comes despite the country having a greater share of people coming into the office on a daily basis than in the U.S. While the return-to-office rate in the U.S was around 50% of pre-pandemic levels in June, China's levels were around 70%, Yahoo Finance reported, citing data from CBRE.

Rather than remote work, the issue in China is oversupply. The country didn’t set up the same barriers to overleveraging that the U.S. did after the Global Financial Crisis, allowing new construction to boom as developers took on large amounts of debt. Only in mid-2021 did regulators cap the exposure banks could have to real estate.

But the development deals that closed before 2021 are still coming to fruition, with a wave of new office towers expected to hit the market this year in China.

“We are closer to the bottom but we aren’t seeing it just yet,” CBRE Head of Research for Asia Pacific Henry Chin told the WSJ.

China’s real estate market was the No. 1 concern among 222 fund managers worried about a “global systemic credit event,” according to Bank of America’s September investment survey.

Even so, China’s real estate troubles are unlikely to spill over into the U.S. market, experts told Bisnow last month.

“You have two very different financial supervision systems,” Collin Lau, founder and CEO of Hong Kong-based real estate and asset management firm BEI Group and former head of real estate for China’s sovereign wealth fund, told Bisnow. “I don’t see any close correlation between the U.S. and the Chinese systems, so why would the Chinese real estate debt market spill over to the U.S.? I cannot tell.”

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