Your Vacancy Rate Could Be Worse: It Could Be China

The role of commercial real estate in the explosive, near double-digit growth of the Chinese economy might be imagined as follows: factories, dozens at a time, rise everywhere in the previously empty landscape, all to to meet the world’s demand for China’s manufactured goods and thereby pull along China’s economy and society into ever-greater prosperity.

Only half of that is true. Demand for goods is real, and factories and offices  have certainly proliferated – 2011 saw 1 trillion yuan ($157 billion) in commercial real estate investment. But China’s enormous growth is hiding a desperate struggle with the other pieces of the economic puzzle.

As it turns out, a sad thing happened on the way to Chinese prosperity. China’s building policies created a commercial and residential real estate glut that is nothing short of jaw-dropping. Empty, giant apartment and condo towers, desperate agents handing out collateral on highway exit ramps, and lonely maintenance staff sweeping floors of enormous shopping malls with 99.8% vacancy – these are not the images we expect to see when we consider the recent history of China’s impact on the world economy.  Yet this is what a TV crew for the Australian Broadcasting Company found in a 2011 piece called “China’s Ghost Cities And Malls”.

Warning: your heart will break when you meet the toy retailer stranded in an empty mall with no neighbors, no customers and no idea of what went wrong.