Huge wave of office supply expected to soften market in China’s big cities

PUBLISHED : Tuesday, 22 April, 2014, 2:59pm
UPDATED : Wednesday, 23 April, 2014, 3:08am

Six million square metres of office space from 74 prime commercial developments in Shanghai are due to come on stream within the next 36 months, property consultancy DTZ said.

This is the largest supply shock facing a top-tier city on the mainland.

Meanwhile, office supply in second-tier cities was expected to increase more than 350 per cent from current levels, DTZ said.

In top- and second-tier cities, 25.2 million square metres of office floor area, potentially provided by about 274 new commercial properties, was scheduled to be completed within three years, the consultancy said.

But the mainland's looming wave of office supply might prove to be less devastating than originally feared, said Andrew Ness, head of research for North Asia at DTZ.

Nevertheless, he said the completion of even 56 per cent of the originally anticipated stock within this three-year timeframe was likely to leave these office markets generally characterised by soft rents, declining absorption rates and persisting, high levels of vacancy.

"Although we forecast net absorption will continue to increase in the next four to five years on the back of new supply-driven demand and the expanding footprint of domestic occupiers, vacancy rate is expected to continue to rise at a fairly rapid clip as well," said Ness.

Even taking into account the anticipated delays in completions, new supply next year will continue to surpass net absorption.

DTZ concluded that, with only a few exceptions, the mainland's office markets would remain under pressure to consolidate, at least over the medium term.

But compared with the second-tier cities, vacancy levels in top-tier ones such as Beijing and Guangzhou were forecast to remain flat as the disequilibrium between supply and demand would still be basically static, it said.