Chinese Office Developers Offer Attractive Deals and Lower Rents to Lure Tenants

Commercial property developers in China, grappling with record-high office vacancies across the country, are offering lower rents along with value-added services such as subsidies for electric vehicle charging in an effort to attract tenants.

Empty office spaces are becoming increasingly common in major cities like Shenzhen — a southern tech hub — and Shanghai, the country’s commercial capital. The sector is facing sluggish demand as companies cut costs and multinational firms scale back their presence.

According to real estate consultancy Savills, as of the end of June, Shenzhen recorded the highest vacancy rate among China’s four top-tier cities at 30.6%, followed by Shanghai at 23.7%, Guangzhou at 22.6%, and Beijing at 19.6%. This is despite remote work being much less widespread in China compared to many Western markets.

James Macdonald, Senior Director of Research at Savills, pointed to the continued oversupply and weak tenant demand in these cities, saying, “We expect conditions to remain challenging in the near term, with landlords relying on incentives and flexible lease structures to retain tenants.”

Data from Savills shows that rents for Grade-A offices in these four cities have dropped by 20% to 40% since 2020, with Beijing experiencing the steepest decline.

China’s economy, the world’s second-largest, has so far avoided a sharp downturn due to policy support, but with weakening exports, low consumer confidence, and a persistent property market slump, growth is expected to remain sluggish in the second half of the year.

China Merchants Commercial REIT (1503.HK), a state-owned firm that saw its net property income fall by 16% in the first half of the year, said during an August webcast that it is offering tenants more flexible leases and operational services to improve “stability.”

Liu Zhongliu, who oversees some of the company’s properties, stated, “These services are as sophisticated as those for air conditioning, electrical equipment, and EV charging electricity fees.”

The company added that the commercial real estate market is facing a “more severe” situation than the broader economy, and recovery will take time due to structural adjustments driven by weak demand and oversupply.

Guo Jin, Executive Director at China Merchants Commercial REIT, remarked, “The market has gone through 30 to 40 years of rapid expansion. There’s still room for improvement, and policies cannot achieve their goals in a single stage.”

Government Support Measures

To support the office sector, some local authorities have introduced rent subsidies, encouraged the conversion of old office buildings into residential units, and halted the sale of new land for commercial developments.

Macdonald from Savills emphasized that the government’s most effective role may be to support the broader economy rather than directly incentivizing the office market.

Amid fierce competition, developers are offering rent concessions to keep lease rates from falling further.

Hang Lung Properties (0101.HK), a Hong Kong-based developer whose office rental income in China fell by 5% in the first half compared to the previous year, noted that Shanghai is facing the most pressure due to ample supply and declining rents.

CEO Weber Lo said, “If you want to retain tenants, you have to lower rents.” He added that only a few multinational companies are expanding in China, with many seeking more affordable spaces.

Beyond offices, state-owned logistics warehouse developer Shenzhen International (0152.HK), whose clients include Chinese e-commerce giant JD.com (9618.HK) and U.S. retailer Walmart (WMT.N), is experiencing similar challenges.

Chairman Li Haitao said during a recent earnings call, “Our CEO Liu Zhengyu is working tirelessly, meeting tenants every other week to maintain and strengthen relationships.”