Office rental

Shenzhen leads office rental growth in China

Pressure is expected to build in all 16 cities in the index amid new project launches

PUBLISHED : Tuesday, 21 July, 2015, 8:00pm
UPDATED : Wednesday, 22 July, 2015, 12:22am

Shenzhen continued to see the strongest rental growth, both in quarter-on-quarter and year-on-year terms, according to the latest SCMP-DTZ mainland office rental index.

According to the quarterly index, which tracked 16 major Chinese cities, rents in Shenzhen increased 3.9 per cent in the second quarter from the previous three months, or 18 per cent on a year earlier.

"The financial sector has clearly emerged as the major demand driver in Shenzhen. This is especially the case in the Futian central business district, where occupiers have turned very optimistic on the back of the new financial policies being launched in the Qianhai economic zone," said Andrew Ness, the head of research for China with DTZ.

"Interestingly enough, the optimism and heightened level of market activity by finance-sector occupiers have driven the media and telecommunications industries out of Futian and into Nanshan."

Across the 16 cities surveyed, half witnessed a softening trend in office rents over the past quarter, the index showed. Of the remaining half that recorded growth, the average increase was less than 1 per cent.

"Looking ahead, all of the cities tracked are expected to have new launches entering the market in the coming quarter. This will undoubtedly act to keep pressure high on availability ratios and rents," said Ness.

"As a great portion of this future supply is concentrated in emerging submarkets, pressure and competition for occupiers in these areas will ratchet up to even higher levels."

From a developer's perspective, adjusting construction progress to avoid mistiming completion at a moment of peak competition had become a key consideration in many markets, he said.

During the quarter under review, Xiamen saw a quarter-on-quarter gain in office rents of 1.8 per cent. From a year earlier, they rose 3.3 per cent. Domestic banks were active in leasing space at the Cross-strait Trading Centre where the free-trade zone is located.

Guangzhou saw quarterly rental growth of 0.5 per cent. Rents remained relatively flat across most of the submarkets with the exception of Yuexiu, where the local government introduced incentives to encourage enterprises to move their headquarters to the district.

In Beijing, rental growth was even more moderate, at just 0.3 per cent quarter on quarter. On the submarket level, movements were mostly within the range of minus 0.1 per cent and 1.24 per cent.

Soaring rents in core areas such as Financial Street, the central business district and Changan Avenue have compelled tenants with lower rent tolerance to relocate to alternate office areas.

On the negative side, rents in Shanghai continued to witness downward adjustment, falling 0.4 per cent quarter on quarter. Although market demand remained strong, the wave of new supply has increased competition among landlords. This was especially the case in Puxi, where emerging hubs continue to see new projects.

Despite the softening trend in non-core areas in Puxi, Pudong remained strong with a 3.2 per cent increase in office rents in the second quarter.