An office building in Shanghai being developed by Sun Hung Kai Properties China. Photo: Handout

NewOffice take-up grows in China’s 16 cities, but rents decline

Qingdao posts sharpest quarterly growth, followed by Shanghai


Across the 16 cities surveyed, leasing activity picked up further from the last quarter in nearly all of the cities tracked, with the exception of Dalian and Hangzhou where market conditions were relatively inactive.

But a sharp pick up in the third quarter office leasing activity did not necessarily push up rents, according to the SCMP-DTZ/Cushman & Wakefield mainland office rental index shows.

The index, issued quarterly by the South China Morning Post and property consultancy DTZ, reports office rental performance in 16 mainland cities. It was developed with a base value of 100 at the first quarter of 2013.

Amongst the cities tracked, about seven of the witnessed a softening trend in office rents over the past quarter. The remaining 9 cities saw some positive growth, but amongst them, the rental growth for four of the 9 was below one per cent.

Qingdao recorded the sharpest quarterly growth at 3.5 per cent, followed by Shanghai at 2.1 per cent. Shenzhen continued to record positive quarterly growth of 1.8 per cent quarter-on-quarter.

Xi’an, by contrast, recorded the sharpest drop in rents amongst the cities tracked, with office rents declining by 3.9 per cent quarter-on-quarter.

Beijing witnessed cumulative net absorption of over 350,000 sq metres, an increase of over 86 per cent year-on-year.

However, overall rents in Beijing dropped 0.4 per cent quarter-on-quarter. The non-core market declined by 6.7 per cent.

Guangzhou also witnessed very strong absorption, on the back of strong demand from the finance, TMT and professional services market sectors. However, rents only increased by a mere 0.9 per cent quarter-on-quarter due to heightened competition between the core Pearl River New City submarket and other sub-markets.

In Shanghai, net absorption reached a quarterly record high of over 377,000 sq metres. However, Shanghai office rents rose by just 2.1 per cent quarter-on-quarter. The prolonged effect of a supply peak in Shanghai has had a constraining effect on rental growth in recent quarters and is expected to continue to cap rental increases over the short to medium term.

“Looking forward, during the remainder of 2015 and throughout 2016, the supply wave of office developments currently in the pipeline but nearing completion will continue to impact on the leasing performance of all cities tracked, “ said Andrew Ness is Head of Research, Greater China DTZ/Cushman & Wakefield.

Ness said newer and more prominent properties situated in existing prime or rapidly emerging new sub-markets will command a premium over prevailing market rents. But weaker submarkets will face even stronger competition with respect to retaining or attracting occupiers , and this will place growing downwards pressure on their rents as it acts to lift their vacancy levels.