China office vacancy rates rise as foreign investment declines

Office vacancy rates in China are increasing due to the withdrawal of foreign companies and the reduction of leased space by domestic firms. According to a second-quarter report by real estate services firm CBRE comparing 20 global cities, Shanghai recorded the highest vacancy rate at 24.5 percent. Beijing ranked eighth with a vacancy rate of 17.9 percent.

Shanghai’s vacancy rate has risen by 5.1 percentage points since the fourth quarter of 2019, representing the steepest increase among major global cities, surpassing New York, Tokyo, and London. This trend is partly driven by declining foreign direct investment; data from China’s State Administration of Foreign Exchange showed net inflows of US$26.6 billion in the second quarter, a 23 percent decrease from the first quarter.

Beyond Western divestment, worsening China-Japan relations have also led some Japanese companies to reduce investment. The issue is spreading to inland cities like Chongqing, where vacant offices show signs of physical deterioration. While many office buildings are owned by state-owned enterprises, rising vacancies and oversupply are expected to exert downward pressure on rents, potentially impacting privately owned properties. A 20 percent vacancy rate is widely considered a “red line” for office oversupply.