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SCMP Reporter

IT IS crunch time for some of Hong Kong's developers. Having rushed in and leapt on the Shenzhen office development wave together, some are wishing they had jumped off.

  Times have changed. As the focal point of China's first special economic zone, Shenzhen once held a monopoly over foreign investors wanting to get in on the great Chinese economic miracle.

  Demand for good quality office space was rocketing, and supply was thin.

  The prospect of making big bucks rushed to the heads of many Hong Kong developers and there was little in the way of city planning to stop them all joining the building bandwagon.

   As a result, supply is now sky-high, prices have stagnated and competition has spread.

  Foreigners find they have a host of rival open cities to choose from.

  Shanghai, earmarked as China's financial capital for the 21st century, and, to a lesser extent, Beijing are now the main magnets for foreign service-sector companies looking to set up their mainland headquarters.

  This leaves Shenzhen trying to attract less glamorous, industrial companies searching for somewhere to base their China manufacturing quarters.

  Even on this front Shenzhen finds it is competing with a host of other newly emerging big cities such as Dalian, Wuhan and Xiamen.

  Xiamen is being lined up as the gateway in and out of southern China, Dalian as the exit to and from the north and Wuhan as the crossroads for central China.

  With prices in Shenzhen not much less than those in non-central parts of Hong Kong, many companies setting up in China are reportedly looking further afield.

  At the end of the day, some may decide to stay in Hong Kong, where a flood of new-style decentralised industrial and office complexes makes an attractive proposition.

  Plus, there is competition from nearby Guangzhou.

  ''What's the point in moving to Shenzhen?'' asked Credit Lyonnais property analyst Benjamin Chan.

  ''It's a mess. Who wants to see the chimneys of factories facing you out of the window every morning?   ''If you're a service sector company, you are much better off going to Beijing or Shanghai where there are better banking facilities, insurance and security.''   The question which property companies such as Henderson Land have to face, with projects in Shenzhen nearing completion, is whether to market now and be damned or wait in the hope that things might get better.

  It could be that they are in a no-win situation, for the short to medium term at least.

  The current total stock of quality office space in Shenzhen is now 3.76 million square feet, according to figures from Jones Lang Wootton, with an embarrassing vacancy rate of 12 per cent.

  Demand is slowing and the oversupply situation looks as though it can only get worse.

  China property experts at Raine Horne and Lau International (RHL International) have calculated that developers already have plans for another 13.67 million sq ft of new office space on their drawing boards for the next five years.

  Of this, 7.53 million sq ft will be located in the city's Luohu district and 6.13 million sq ft in the fast-emerging Futian district.

  RHL International is pointing to a particularly dramatic increase in supply in 1995 and 1996.

  Admittedly not all of the buildings being proposed were likely to be built, said RHL International executive director Serena Lau, but Shenzhen definitely faced problems.

  Among the major office developments that will be completed are the 1.07 million sq ft Shen Feng Commercial Centre, the 1.47 million sq ft Di Wang Commercial Building and the Shenzhen Development Bank Building with 681,727 sq ft of office space.

  Having bought land in most cases at bargain prices, most developers do not stand to make a loss. But the fast-spinning dollar signs that once passed before their eyes are beginning to fade.

  Henderson has opted to delay, choosing to begin marketing its Henderson Beijing Centre in the capital ahead of its two Shenzhen office projects, even though the Shenzhen developments are nearer completion.

  If Henderson is thinking of waiting for rents or sales prices to improve, it could be in for a long wait.

  Sales prices in Shenzhen range from $1,000 to $2,500 per sq ft, depending on location and quality of development. And with so much supply, prices are likely to remain flat.

  ''Today, the prospects for office investment in Shanghai and Beijing are far better, because at least there, prices are going up at a good rate,'' said Ms Lau.

    However, she added: ''That doesn't mean the Shenzhen office market is going to crash.''   Edward Cheung Kwok-ching, China director of C. Y. Leung and Co, agreed, saying that, despite short-term hiccups, he was confident about the long-term prospects of the Shenzhen office market because of its undoubted integration with Hong Kong.

  On the rental front, Shenzhen is still an attractive proposition to the end-user in straight dollar terms.

  Compared to the astronomical asking rents of HK$50 per sq ft a month in Beijing and $43 in Shanghai, Grade A asking rents of $20 to $25 per sq ft sound very attractive.



Investors look beyond Shenzhen