District is pearl in city's crown
While Beijing and Shanghai remain the top choices for multinational companies setting up head offices on the mainland, the market in Guangzhou is making headway with more grade-A office space in the Pearl River New City central business district.
The expansion of urban development in Guangzhou has seen the strategic development of new city centres, spreading the demand placed on ever-growing infrastructure. The local government has built new metro lines and is upgrading highways and roads in anticipation of the growing economy.
Major developments have taken place in the mouth of the Pearl River Delta, focusing on culture, recreation and sports. The central business district of Pearl River New City is being formed in addition to Tianhe North, both in the Tianhe district, an emerging business centre that was nothing more than a cluster of villages and farms about 10 years ago.
The combination of location, accessibility and facilities has seen the convergence of grade-A commercial and office buildings, including Guangzhou International Finance Centre (GZIFC), OneLink Walk and Canton Tower, which all opened last year. Taikoo Hui, GT Land Plaza and Pearl River Tower are expected to be completed this year.
New tenants account for much of the new office space, with the net absorption rate reaching nearly 200,000 square metres in the first quarter of this year, about half the figure achieved last year, according to Jones Lang LaSalle.
Pearl River New City, covering 6.5 square kilometres, is the largest central business district built on the mainland, playing the same role as Pudong in Shanghai. It is designed to serve not only Guangzhou, but also the whole of southern China.
According to a report by CB Richard Ellis, while the plan to construct a new city centre in Pearl River New City was announced as early as 1993, commercial property development only took off in 2003, when the local government adjusted the plan.
Pearl River New City is divided into east and west, with the east section mainly designated for residential development and the west as a commercial zone.
The core area of the west section is the proposed new city axis, which will cluster top-end office buildings, hotels, shopping malls and major public service and cultural facilities.
Pearl River New City is taking on a new look, with high-rise commercial buildings in great numbers and more in the pipeline. The icon is the 440-metre GZIFC, the second-tallest building in the city after the 600-metre Canton Tower, which is an observation structure.
After its soft opening last year, GZIFC is catering to world-renowned companies, especially those in the financial industry, that are setting up their mainland headquarters.
Two-thirds of its 100 floors are allocated to grade-A offices, while the 67th to 100th floors are occupied by the Four Seasons Hotel, which also provides hotel-class serviced residences. GZIFC's podium houses a department store and an international conference centre.
GZIFC has attracted tenants such as the Agricultural Bank of China, Guangzhou Securities, China Construction Bank and Sinochem Oil. Apart from GZIFC, the business district houses about 40 office buildings, hotels, Guangzhou Opera House, Guangdong Provincial Museum, and Guangzhou City Library.
The outlook for the Guangzhou office sector for the next quarter is that of steady growth, according to Jex Ng, of Jones Lang LaSalle. A rebound in leasing activity from domestic and foreign companies has been crucial to the recovery of the grade-A market. The past 18 months have been a strong indicator of growth.
'The development of premium-grade office space is much stronger than expected.
'In particular, the absorption rate of new first-grade office space has quickened in pace,' Ng says.
Demand has pushed office rentals to new record highs for the city, with office space in GZIFC now commanding more than 250 yuan (HK$299) per square metre per month, compared with an average of about 125 yuan, according to a report by research firm DTZ. While demand is expected to remain strong and even increase, more than 1.1 million square metres of new office space are expected to come onto the market this year.
According to Jones Lang LaSalle, the substantial volume of newly completed projects means that demand is likely to be absorbed, while demand in prime locations will retain their rental premium.
Older buildings, that tenants have vacated to move to newer locations, are being left vacant, leaving landlords with little option but to offer rental concessions to compete with newer facilities.
Figures also suggest that completions are quickly outpacing the growth in demand.
The vacancy rate for office space for the city in the first quarter was 12.1 per cent, up from 11.7 per cent in the previous quarter.