Pain in Guangdong

Office building owners in parts of southern China were even worse off than those in Shenyang in the first quarter. Jones Lang Lasalle reported that the office vacancy rate in Guangzhou, capital of Guangdong Province, was 21.2 percent, unchanged from the fourth quarter of 2008, while average rents fell 8.8 percent. The firm didn't give a yuan figure for office space.

Chen said southern and eastern provinces, Guangdong in particular, had been hard hit by falling export demand since last year, with many factories and export trading companies going bankrupt.

Guangdong is famous for its toy, bag, suitcase, shoe and home appliance exports.

But the province's economy expanded 5.8 percent year on year during the first quarter, 0.3 percentage point below the national average, slowed by the export slump.

Chen added that there was a contrast in the fundamental situations for residential and commercial properties in China. The main problem for the residential property market was that high prices in many big cities like Shanghai, Beijing and Guangdong were not affordable to residents. However, the main problem for commercial property was the weakening willingness to invest by domestic entrepreneurs.

"The crux of the problem in the Beijing and other metropolitan markets [for commercial space] is that actual demand fell short of expectations, and this divergence could not be eliminated in a short period," Chen said.

International and domestic companies had begun to lease smaller and cheaper offices, affected by the financial turmoil and economic downturn since last year, he added.

Wang said whether a strong revival in the rental market would develop in early 2010 would depend heavily upon global and domestic expectations for output growth over the next two years.

Chen said after China released second-quarter economic data in July, then it would be time to judge whether the commercial property sector would pick up this year.

Expo no panacea

Spurred by the State Council (cabinet)'s goal, announced in March, to build Shanghai into a global financial and shipping hub by 2020, office building sales in the city picked up in the first quarter. Analysts said that the ambitious plan gave investors confidence in the city's long-term development prospects.

CIA figures showed the average office sales price in Shanghai rose 76.3 percent to 25,660 yuan per sq m in the first quarter year on year.

But average daily office rents in China's largest city eased 6.2 percent to 7.6 yuan per sq m in the first three months from the fourth quarter, according to Colliers International, which said vacancy rates and inventories were still high.

Chen said that the coming Shanghai Expo would definitely buoy the local economy, but mainly those sectors related to exhibition and hospitality activity, not the property sector.

He added that the industrial sector was more vulnerable to the global situation, and it would take time for exports to regain momentum when the world economy revived.

Retail sales up, leasing stagnant

Retailers have felt the brunt of dampened consumer sentiment and sales revenues have begun to decline, putting downward pressure on retail property rents.

China's first-quarter retail sales grew 15 percent year on year to 2.94 trillion yuan and those in Beijing rose 12.6 percent to 122.1 billion yuan, but most of those gains represented higher unit volume achieved by aggressive discounting by large supermarkets, Chen said.

Those conditions didn't translate into gains by luxury brands or small community shops in many cities, and these retailers were unwilling to open new outlets or expand existing ones, he added.

CB Richard Ellis said the retail property vacancy rate in Beijing rose by 1 percentage point to 8.2 percent in the first quarter, compared with the fourth quarter, and rents also declined. The firm didn't give a specific average rent amount, but local media reports have said retail property rents fell 5 percent to 10 percent in Beijing's central districts during the first quarter.

The situation was similar in Shanghai, where Jones Lang Lasalle said the daily average retail property rent fell 1.4 percent during the first quarter from the fourth, to 47 yuan per sq m. That was the first quarter-on-quarter drop since 1999.

"Following lower levels of business activity, a number of retailers have begun to postpone previous expansion plans, focusing more attention on the management and operation of their currently occupied outlets," according to DTZ.