It should be no surprise that China – the world’s emerging superpower – wants to be next to boast the world’s tallest building, and build it at record speed.
But does the country, already strewn with barely-occupied shopping centres, apartment buildings and offices, really need the 220-storey Sky City tower in the central industrial city of Changsha?
At first glance, the Sky City project seems too good to be true. Rough plans for the 838-metre, multi-use tower were unveiled in June by Broad Group, an air-conditioning company moving into property development. An earlier version of plans for the building set it at 200 storeys and 666 metres, including 6,690 apartments, 210,000 square metres of office space and a luxury hotel. Reports have suggested the last 20 storeys, to give the building the ‘world’s tallest’ title, were added at the urging of local government officials.
The company’s construction arm, Broad Sustainable Building, has pledged to erect the new super skyscraper in as little as three months using prefab components and streamlined construction. It built a 30-storey tower in a little over two weeks last year, using prefab components.
It’s not clear Sky City will leave the ground. But the ambitious plan is already stirring some worry in a country already grappling with an abundance of real estate from years of relentless infrastructure spending, along with a cooling economy.
If the tower is actually completed, there is the question of who will fill its 1 million square metres of floor space, served by 104 elevators. It all must be absorbed by a proud, but largely working-class city of 7 million – large by Canadian standards, but provincial in a country of 1.3 billion – in which possibly only 2 to 3 million people have the financial means to shop, eat or live in such a development.
“For the rest of the population, they are sitting at home doing nothing, they are not going out and dining or shopping,” said Carlby Xie, head of north China research for Colliers International, which tracks retail and commercial rental prices in China’s major cities. “The key point is, softened demand is already looming on the market, and [so is] softened revenue.”
Office space now under construction in China could take seven years to fill, by some estimates. In second- and third-tier cities like Changsha, much of that space will remain empty for months or years after opening, economists warn – creating the threat of a commercial property bubble to rival China’s residential housing woes.
“In the very near future there is going to be a massive dump of office space in this country and a lot of it is going to be in second- or third-tier cities … There is just going to be a lot more supply than demand out there,” said Patrick Chovanec, an associate professor of economics at Beijing’s Tsinghua University. “Shanghai and Beijing are unique cities in China, they are magnet cities. It’s like talking about Manhattan or London. But what holds for Manhattan doesn’t necessarily hold for Omaha.”
Famously, China already has the empty New South China Mall in Dongguan, a city of 10 million which could never come close to filling the mall’s 2,350 stores. The city of Ordos used its wealth to build an entirely new, centrally planned district which remains largely empty, five years later.
Observers say such grandiose projects are a collision of developers’ faith that government will continue to prop up any money-losing projects, and local governments’ ambitions to show off their cities while driving local GDP figures.
“Like all cases of moral hazards, it’s true until it’s not true,” observes Prof. Chovanec. “The expectation has been that [real estate development] is a no-lose proposition and there is a strong belief it will continue to be that way.”
But that expectation, he said, relies on the central government “waving a magic wand” over natural economic forces to keep the boom going, the kind of approach which drove China’s growth during the 2008 economic crisis but left it with a litany of bad bank loans and a seriously overheated housing market, not yet deflated despite tough government restrictions on mortgages and the purchase of multiple homes.
The growing glut of retail and office space in second-tier cities is already showing. Rents in Tianjin and Qingdao fell between 3 and 8 per cent year-on-year at the end of this year’s second quarter, a Colliers report showed. The economy is slowing down, conscientious consumers are saving their money, and both luxury and mid-market foreign brands are reporting slowing sales.
Yet China’s frenzy to build may be fed anew by smaller stimulus plans now being rolled out by local governments. Changsha announced a separate, 829 billion yuan ($130-billion) spending program for infrastructure; the cities of Chongqing and Tianjin and the provinces of Guangdong and Shanxi have also pledged billions of yuan in spending on areas including capital-intensive industry and infrastructure.
Aside from the size of Sky City, the speed of the construction plan is also raising eyebrows. Broad Group’s chairman Zhang Yue told The Financial Times last month that financing was in place, architects are finishing blueprints and construction is to begin in December. By comparison, the Burj Khalifa in Dubai, presently the world’s tallest building, took more than five years to complete.
Local reports suggest some government approvals are outstanding and a spokeswoman for Broad Group, contacted by phone, offered no new details. “Construction in the project hasn’t started,” said Zhu Linfang, the company’s media manager. “All is going as planned. But we cannot arrange interviews on this project now, and I have no more information to release … We will do it when all is set.”
To some extent, building today to accommodate future growth is China’s way.
“The fact you’ve got so many good quality developers developing good quality office space means you are positioning a city to thrive in the next five to 10 years … It’s a case of you build it and you will grow into it,” said James Macdonald, head of China research for real estate services firm Savills, who argues the approach helps minimize inflationary pressure, even if there is a temporary disconnect between demand and supply. “Temporary could be two or three years, it could be longer. But … this China growth model is not going to go away, we’re in sort of a bumpy patch.”
Still, plans for a 220-storey tower in an out-of-the-way industrial city may be a sign China’s go-go development may be out of sync with its cooling economy.
“I don’t think there is any need to build that high in a market like Changsha,” Mr. Macdonald said.