There’s no denying that the U.S. office market continues to struggle, but looking at China’s troubles in the sector helps put the matter in perspective to a certain degree. While office rental rates have continued to rise in the U.S., despite the high post-pandemic vacancies, rental rates in China are plummeting right along with occupancy levels. Recent research by CBRE shows that approximately 24 percent of the square footage of office towers in China’s 18 leading cities was completely vacant at the mid-year point. Here at home, the office sector fell victim to pandemic-expedited remote work policies and hybrid schedules that led many companies to downsize their office footprint. But in China, the source of the office sector’s woes is entirely different. The Chinese office market is losing occupants and dropping in value because the country overdeveloped the sector. There simply isn’t enough demand to consume the ample supply of office space (with new government restrictions on the private sector playing a role here) amid the country’s sagging economy.
The U.S. can’t wag its finger at China, as many of our top cities have suffered the consequences of overdevelopment during one real estate downturn or another. However, lessons have obviously been learned. Not only has the U.S. not overdeveloped its office sector, the real estate industry is slowly but surely bringing new life to office buildings that are unlikely to survive the slump by executing conversion projects, many of which involve transforming these empty workplaces into high-demand life sciences facilities or much-needed rental housing. In the U.S., the remote and hybrid work trend was already gaining steam before COVID-19 ravaged the world and the workplace, so we had a bit more time to adjust. With the property industry in China already raising concerns, these empty office buildings will likely only make matters worse in the world’s second largest economy.