Office rental

Top grade office supply to flood Chinese cities

Beijing to see the most new space of 1.97 million sq metres this year

PUBLISHED : Tuesday, 24 January, 2017, 5:07pm
UPDATED : Tuesday, 24 January, 2017, 7:45pm

China’s prime office market will see a flood of new supply in major cities this year, putting significant pressure on landlords, an industry report says.

About 5.8 million sq metres of grade A supply would come on the market in six major cities, real estate services firm DTZ/Cushman & Wakefield forecasts.

The figure is a 5 per cent rise on the 5.53 million sq metres of new supply last year, an already high base.

“Given the large amount of prime office supply to hit all markets, we expect, in most cases, the expected level demand will not be able to absorb all the new space,” said Shaun Brodie, DTZ/Cushman & Wakefield’s head of occupier research for greater China. “Vacancy rates will move upwards, which will place pressure on rentals.”

Apart from Shanghai, Guang­zhou, Shen­zhen, Wuhan and Chengdu, Beijing is expected to receive the most new prime office supply – 1.97 million sq metres.

The quickest growth will be in Shenzhen, where new offices completed this year are expected to account for 40 per cent of current stock.

As an example, the 115-storey Ping An International Finance Centre in Shenzhen’s central business district, the city’s new landmark and tallest building, is now ready for leasing.

However, David Ji, the head of research for China at property consultancy Knight Frank, said the demand for offices in leading cities was also growing fast because of strong economic activity, and that could absorb the abundant supply.

Unlike Hong Kong, where the market is dominated by the finance industry, prime office tenants had become diversified on the mainland, Ji said.

The liquidity was good, so there were no worries of a sudden mass exodus of tenants, he said.

“Emerging hi-tech companies, logistics companies and professional services firms are all looking for office space, and many of them have strong affordability,” Ji said.

Still, given the spate of supply in new commercial areas in the cities, office tenants will certainly have more location options, while traditional core areas may lose their attraction.

“These peripheral sub-markets will continue to attract a good number of companies looking to either decentralise from central business districts or set up new headquarter offices or even campus-style offices,” Brodie said.

In Shanghai for instance, the office space shortage and subsequent rental increases in core central business districts such as Lujiazui will force tenants to consider emerging areas such as Hongqiao Hub and Qiantan, where there is more space available and rentals can be nearly halved from an average 11.60 yuan to 6.40 yuan per square metre per day.

Similarly, “in Shenzhen, a tech company now can either go to Futian, Qianhai or Shekou. There’re just so many choices,” Ji said.