2014-04-07

Office Vacancy Rates Hit 58% in Wuxi; 30% in Hangzhou


Empty office buildings point to deeper malaise in China's wealthiest region
While a loan default by a developer in Zhejiang sparked fears of a collapse of the residential property sector, the situation in the office sector appears to be even worse . Residential property developers can at least slash prices to dispose of flats to recover part of their investment. Half-empty buildings, however, are not just white elephants but financial black holes.

Jones Lang LaSalle found that at the end of last year, occupancy rates for Grade A office buildings stood at 58 per cent in Wuxi, Jiangsu, and 30 per cent in the Zhejiang capital, Hangzhou . In other major delta cities, which together make up the most vibrant and developed regional economy on the mainland, occupancy rates also hovered around 30 per cent last year.

In Wuxi, the vacancy rate was expected to stand at 48 per cent in 2016, it said. By the end of that year, the stock of prime office space in the city would nearly triple from last year's amount to 565,000 square metres.
Chinese coverage: 写字楼空置率攀升凸显长三角隐忧:无锡空置率达58%

One cannot forget the role that government revenue played in all of this:
Developers splashed out billions of yuan to build office buildings, shopping malls and entertainment complexes in the new towns, believing an affluent population of 75 million would be enough to support their businesses. Unfortunately, reshuffles of municipal officials led to dramatic changes in urban development plans. New leaders would map out their own blueprints, earmarking more untapped land for new high-rise residential areas or industrial zones .
Land sales are responsible for the majority of local government revenue, which provided a big incentive to grow as fast as possible. When the real estate market tumbles, so will government revenue. Major tax hikes in the midst of a recession are unlikely. Either mass defaults or a massive increase in the central government's balance sheet is at hand.

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