(Bloomberg) — A once-thriving corner of China’s commercial real estate market is showing signs of strain, adding to the gloomy outlook for property in the world’s second-largest economy.
Vacancy rates for high-end logistics storage in eastern China, once among the safest bets in the country’s battered market, jumped in the fourth quarter, according to Cushman & Wakefield Plc. The rate in Shanghai alone soared to 15% from 9.8% in the third quarter, Cushman’s tally showed.
“Vacancy at logistics storage can well reflect China’s economic activities because its tenants include those in manufacturing, trade and e-commerce industries,” said Tony Su who oversees Cushman’s logistics business in eastern China. The “huge change” in the sector underscores demand is falling in investments, exports and consumption, cited as “the three carriages” driving growth.
The country’s economy recovery remains under pressure from weak demand and a lingering property crisis, despite a bigger dose of fiscal and monetary stimulus last year. A gauge of manufacturing activity slipped deeper into contraction in December, though a services measure released Thursday showed some signs of expansion.
Though economists forecast that the economy expanded at a faster clip of 5.2% in the fourth quarter — from 4.9% in the third quarter — the slump in the logistics market is another sign of a muted rebound.
In addition to the jump in Shanghai, vacancies climbed 1.7 percentage points to 21.6% and by 1.2 percentage points to 17.2% in adjacent Zhejiang and Jiangsu provinces. The three regions are among China’s four largest logistics markets, Su said.
Logistics centers have been among the most sought-after commercial real estate assets in China, attracting institutional investors including GLP China Holdings Ltd., ESR Group Ltd. and Warburg Pincus. Even when China’s economy was snowed under during Covid, the surge in online shopping sparked demand for storage and other such infrastructure.
The abrupt jump in vacancies suggests “a big turn” in the market, Su said.
For the full year, the vacancy for logistics storage in eastern China jumped by more than half from 2022 to 18%, the highest since at least 2018, according to Cushman.
Rents declined in Shanghai and Zhejiang in the fourth quarter, and were unchanged in Jiangsu, suggesting the vacancy increase came more from shrinking demand.
