Friday, February 27, 2009

Was the Beijing building boom a mirage?

I've watched from afar in amazement as China has built it's economy and infrastructure. In 1990 when I wrote that China was the next great economic power to emerge and that China, not Japan was the greatest threat to American economic dominance, even I never envisioned the China that sits before us today (btw - I got B- on that paper because my professor thought the idea of capitalism emerging in China was a silly concept). Via the LA Times....

"By Rodman's calculations, 500 million square feet of commercial real estate has been developed in Beijing since 2006, more than all the office space in Manhattan. And that doesn't include huge projects developed by the government. He says 100 million square feet of office space is vacant -- a 14-year supply if it filled up at the same rate as in the best years, 2004 through '06, when about 7 million square feet a year was leased."

Two huge items in that paragraph -
1) China built more office space since 2006 than all the office space that exists in Manhattan

2) They have a 14 year supply of commercial real estate at the peak demand rates of 2004-06.

China's economy is clearly slowing and if the market has 100 million square feet of surplus inventory today, you can imagine what the market will look like in 2010 or 2011.

I often kid that everything made in China is meant to be disposable. A TV used to last 30 years, now lasts 2. However, I never thought I'd see the day of disposable stadiums....

"The National Stadium, known as the Bird's Nest, has only one event scheduled for this year: a performance of the opera "Turandot" on Aug. 8, the one-year anniversary of the Olympic opening ceremony.

The venue, which costs $9 million a year to maintain, is expected to be turned into a shopping mall in several years, its owners announced last month.

A baseball stadium that opened last spring with an exhibition game between the Dodgers and the San Diego Padres, is being demolished. Its owner says it also will use the land for a shopping mall."

Sounds like a good time to short the mall industry in Beijing. Seriously, you built a stadium for an exhibition game and then tear it down?

Ultimately, this real estate issue may have some consequences.....

"Before that happens, the situation could get worse. Most of the real estate has been financed by Chinese banks, which have avoided writing down the loans. Eventually, they will be forced to, and that probably will have a ripple effect throughout the economy."

Hmmm, banks writing down loans and that could have a ripple effect on throughout the economy......where have I heard of that happening before?

No comments: