Increases in supply will be the main factor driving this short to medium-term growth. The mainland's first-tier office market will see completion of 156 projects providing 15 million sqmetres of office space from the third quarter of 2014 to 2019. This is equivalent to 70 per cent growth in the existing office stock or a 10 per cent annual addition to the aggregate market value over the next five years.

Developers are the largest group of stakeholders in the grade A office market, collectively owning a 54 per cent share of the value, equal to 11 million sqmetres. This breaks down as 29 per cent held by listed developers and 25 per cent in the hands of private property companies.

The other major category of owners is corporate owner-occupiers, which hold 20 per cent of the stock, mostly to house their own operations.

The mainland's grade A office properties could be classified as an emerging institutional asset class, with 16 per cent under the balance sheets of unlisted private equity funds, real estate investment trusts (reits) and financial institutions, the latter comprising mainly mainland banks and insurers.

Investment interest in grade A office properties began in 2004 with domestic institutions, most notably insurers making their first forays into office properties. Acquisitions made from 2004 to 2007 by insurers were notionally for their own use as regulations at the time did not permit their direct investment into real estate.

After the market peaked in 2007, it subsequently declined in 2008-10 amid the global financial crisis and the retreat of global private equity funds from emerging markets back to their developed home markets.

Grade A office investment began to recover after 2010, with an influx of capital further buoyed by the gradual loosening of controls over entry by domestic players, including yuan private equity funds and mainland insurers, which were for the first time permitted to invest in real estate.

Shanghai, by way of its greater international orientation, has seen inbound liquidity into its grade A office market buoyed by the keen interest of overseas funds and financial institutions. Conversely, the more domestically oriented Beijing has rapidly become the focal point of the mainland's institutional investors and funds as they begin to play catch-up on building their office investment portfolios in the country after loosening of regulatory controls made this possible.

During 2006-14, corporate and financial institutions were the main buyers in the mainland's grade A office market by funds allocated, with net purchases of 52 billion yuan and 36 billion yuan, respectively. Private equity funds were the second-most active.

Along with the rapid growth in scale, ownership structures will continue to evolve with corporations and institutions continuing to increase their share of grade A office ownership in first-tier cities. They will continue to deploy a combination of strategies, including purchases from developers and development for self-use or investment purposes. Private equity funds and reits will continue to expand their investment portfolios. However, their share of ownership is expected to shrink owing to a slower pace of increase compared with corporations and institutions.

In contrast, the share held by private developers will shrink because of their accelerated pace of divestment over the next few years. Unlike institutional players and listed developers with stronger financials, private developers that have committed to developments in decentralised submarkets with heavy supply-demand imbalances face divestment pressure during a cyclical downturn in the leasing market.

But given the solid longer-term fundamentals of the first-tier office markets, the faster pace of divestment by private developers will likely become an attractive investment opportunity for financially strong players to grow their footprint over the next several years.