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Shenyang’s current industrial estate market status and trend

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We noticed that there are lots of Shenyang industrial buildings being empty, and the rent rate is dropping to a history low record, what is the real situation and where would the local industrial real estate market go in the coming years?

It is true that Shenyang is experiencing a significant decline in the industrial real estate market. Reports indicate that many industrial buildings in Shenyang are vacant, leading to a drop in rental rates. The city’s industrial sector is facing challenges such as oversupply and decreased demand, exacerbated by broader economic slowdowns and changes in manufacturing trends.

In the context of China’s overall industrial real estate market, Shenyang’s situation reflects a larger trend seen in several other cities. Factors contributing to this include shifts in the global supply chain, economic uncertainties, and tighter lending conditions which have impacted investment and construction in the industrial sector.

These dynamics have led to historically low rental rates and a high vacancy rate in Shenyang’s industrial buildings, highlighting the difficulties in the market and the need for adaptation to current economic conditions.

Reasons of the declining in the industrial real estate market

The decline in Shenyang’s industrial real estate market can be attributed to several interconnected factors. These include economic shifts, changes in global supply chains, oversupply, tighter lending conditions, and regional economic challenges. Here are the detailed reasons along with sample cases and figures:
 

1. Economic Shifts and Global Supply Chain Changes

Global Manufacturing Trends: The relocation of manufacturing activities to other regions or countries due to cost advantages or geopolitical factors has reduced the demand for industrial space in Shenyang. The push for onshoring or nearshoring by Western companies is also affecting China’s manufacturing hubs.
Sample Case: A report by the Commercial Property Executive noted that industrial net absorption rates are expected to stabilize at lower levels due to these shifts.

2. Oversupply of Industrial Buildings

Excess Inventory: There has been significant overbuilding in the past decade, leading to a surplus of industrial properties. The demand has not kept pace with the supply, resulting in high vacancy rates.
Figures: Vacancy rates for industrial buildings in Shenyang are notably high, although specific figures for Shenyang were not detailed, broader trends in the industrial sector indicate a rise to around 5% by mid-2024 across various regions.

3. Economic Slowdowns and Regional Challenges

Regional Economic Issues: Shenyang, being part of the old industrial base in Northeast China, has struggled with economic revitalization. The transition from heavy industries to more diversified economic activities has been slow.
Sample Case: Shenyang’s economic output has lagged behind more dynamic regions such as the Pearl River Delta or Yangtze River Delta, affecting the attractiveness of its industrial real estate.

4. Tighter Lending Conditions

Credit Crunch: Financial institutions have become more conservative in their lending practices, reducing the availability of capital for new industrial projects and investments in existing properties.
Figures: The decline in real estate values is projected to be between 5% to 15% for most property types due to rising cap rates, with the industrial sector experiencing a notable impact.

5. Local Government Policies and Economic Incentives

Shift in Policies: Local governments may have shifted focus towards other sectors like technology or services, providing fewer incentives for industrial real estate development.
Sample Case: Prologis, a global logistics real estate company, highlights that even within China, regions such as the Greater Bay Area receive more attention and investment compared to Shenyang.
 

Detailed Figures and Case Examples:

Vacancy Rates: Nationally, office vacancy rates are expected to peak at nearly 20% in 2024, illustrating the broader real estate market challenges, though specific industrial vacancy rates for Shenyang are harder to pinpoint, this trend likely affects Shenyang as well.
Rental Rates: Industrial rent growth is expected to moderate to around 8% from higher previous levels due to the economic uncertainty and oversupply.
In summary, the industrial real estate market in Shenyang is facing multifaceted challenges. The combination of global economic shifts, regional economic struggles, oversupply, and tighter credit conditions contribute to high vacancy rates and declining rental prices. These factors create a difficult environment for industrial real estate in Shenyang and similar cities.

Trending of the Shenyang industrial real estate market trending in the coming years 

Current and Future Trends
Vacancy Rates and Rental Prices:The vacancy rates in Shenyang’s industrial real estate are expected to peak in mid-2024. However, as the influx of new supply decreases and demand gradually increases, vacancy rates are likely to decline thereafter (CBRE, Colliers).

E-commerce and Logistics Growth:The ongoing growth of e-commerce is driving demand for logistics and distribution spaces. As companies continue to regionalize their operations to improve delivery efficiency, there will be increased demand for modern warehousing close to population centers (Prologis).


Reshoring and Nearshoring: Global trends in reshoring and nearshoring are expected to have some positive impact on demand for industrial spaces. Companies are looking to bring manufacturing closer to end markets to reduce supply chain risks. This could benefit Shenyang if it can attract these investments.


Conservative Development:Due to economic uncertainties and tighter financial conditions, new industrial developments are likely to be more conservative. This means fewer speculative projects and more build-to-suit developments tailored to specific tenants’ needs.


Upgrading Facilities:Future demand will likely focus on modern, highly specialized industrial spaces that can support advanced manufacturing technologies and logistics operations. Developers in Shenyang may need to invest in upgrading existing facilities to meet these new requirements.


In summary, while Shenyang’s industrial real estate market faces significant short-term challenges, there are potential long-term opportunities driven by changes in logistics, e-commerce, and global manufacturing strategies. However, the market’s recovery will depend heavily on broader economic conditions and the city’s ability to attract and retain industrial investments.