In China, empty office spaces fill the sky
The global credit meltdown and Shanghai's slowing economy are chasing away big-time renters from the world's second-tallest building.
(Page 2 of 2)
Few pushed harder than Pudong, the district of Shanghai that was transformed in the 1990s from farmland into a financial hub designed to rival, if not surpass, Wall Street. Multinational firms seeking office space were aggressively courted, often at the expense of Chinese companies. Rents soared as the world flocked to China, and developers scrambled to meet demand.Skip to next paragraph
Subscribe Today to the Monitor
That red-hot demand is now cooling just as a spurt of shiny new buildings fling open their doors. As a result, occupancy rates in Pudong's commercial center recently sank to their lowest level since 2004 and that trend is set to continue, possibly into 2010. (Editor's note: The original version misstated the trend in occupancy rates.)
"Even without the financial crisis, Shanghai's office market was slated for a correction," says Hingyin Lee, director of research in Shanghai at Colliers International, a property consultancy and agent. "This [crisis] will lengthen and deepen the correction."
The SWFC opened in August, having signed up a slate of clients willing to pay for the most prestigious address in Shanghai. A Park Hyatt hotel – the world's tallest – begins at the building's 79th floor with rooms starting from $400.
Among those must-have clients was Lehman Brothers, just weeks away from bankruptcy. Several other international companies have also broken their leases, say property agents. Estimates of the SWFC's occupancy rate range from 20 percent to 40 percent.
Shanghai's boosters point out that their city, a capitalist crucible since the 19th century, was virtually built on land speculation and knows how to survive through booms and busts. In 2005, residential sales slumped as Beijing sought to deflate a real-estate bubble in this and other boomtowns. That effort largely succeeded, so there is an expectation that a fiscal boost can revive the market. Property agents also point to Shanghai's hosting of the 2010 World Expo as a growth driver.
Steep discounts will probably entice back home buyers, as there is pent-up demand for urban housing in China. Unlike in the US, where consumers are saddled by debt, Chinese customers are more concerned with spending their savings wisely, says Mr. Xie, the economist. "This is the difference between China and the US. In China, with lower prices there will be demand," he says.
On a vacant city block behind the SWFC (1,614 feet), construction has begun on a rival Chinese-financed skyscraper. The Shanghai Tower is designed to surpass it by reaching 2,073 feet, also beating out Taiwan's Taipei 101, currently the world's tallest building. Its completion due date is 2014 – in time for the next global bull market.