Office rents rise in Shenzhen, Xiamen and Beijing, index shows

Shenzhen retained its crown as the Chinese city with the highest growth in office rentals in the third quarter, fuelled by strong demand from enterprises for its Qianhai economic zone, the SCMP-DTZ mainland office rental index shows.

The quarterly index, issued by the South China Morning Post and property consultancy DTZ, reports office rental performance in 16 cities in China. First issued in July, the index was developed with a base value of 100 for the first quarter of last year.

Shenzhen recorded the highest overall increase in rents in the third quarter, up 5.6 per cent from the previous quarter, with Qianhai providing a strong stimulus for its economy. The city also ranked first in the second quarter with a gain of 5.7 per cent.

"Strong demand from enterprises seeking to register in Qianhai and the lack of new supply for the past three consecutive quarters acted to strongly stimulate the city's leasing market," said Andrew Ness, head of Northern Asia research at DTZ.

The buoyant demand for office space and sharp upward movement in office rents had forced some more cost-sensitive occupiers to relocate to non-grade-A offices or business parks, he said.

Xiamen also performed well during the third quarter, with growth of 2 per cent as the tertiary sector, comprising mostly finance and logistics, was active in taking space across different submarkets in the city. No new supply was recorded during the period surveyed.

Spurred by strong demand and tight supply, Beijing posted rental growth of 1.9 per cent, outperforming other cities in the north. Several major multinational corporations committed to new leases in the capital during the third quarter.

But domestic companies continued to play the dominant role in Beijing's leasing market, with about 68 per cent of the total take-up in the quarter being domestically driven.

At the other end of the spectrum, rents in Changsha experienced the largest quarter-on-quarter drop, declining by 3.5 per cent. The drop was due to the city's soaring vacancy rate, which reached 33.5 per cent in the third quarter.

In Guangzhou, pre-leasing activity was very strong, with landlords of new properties increasingly inclined to offer rental discounts and incentives in order to promote occupancy. However, such strategies have put rents for existing office buildings under renewed pressure. The average office rent in Guangzhou fell 1.3 per cent quarter on quarter.

"The progressive influx of new supply and the changing economic prospects of individual municipalities continues to be a source of uncertainty for many office markets in China," Ness said.

Many cities are entering a period of massively increased new office supply.

Ness said that developers' strategies, including holding completed buildings back from the leasing market, slowing down the progress of construction and development repositioning, would greatly impact leasing performance in individual office markets.