Savills has released a report on the Greater Bay Area’s office market that shows supply is increasing at a fast pace, pushing up vacancy rates.
While Hong Kong, Shenzhen and Guangzhou remain in strong demand compared to the rest, even they are seeing rates that should be enough to keep landlords awake at night.
According to the report, quoted by local media, the weakest markets are Zhuhai and Foshan, where vacancy rates are running at more than 40%. This is hardly surprising, however, as both have been constructing new large-scale railway stations that spawned a surge in commercial real-estate investment over the past few years. In Zhuhai, this new supply is concentrated in the Hengqin special economic zone, which is about to open the country’s second-largest railway station, and in Foshan it is mainly due to the six stations along the new Guangfo Intercity Railway.
Local media are focused on Shenzhen, where the vacancy rate of Grade A office buildings increased by 4.3 percentage points in the third quarter to 22.4%, mostly due to the concentration of new supply that came online in the quarter. Nine new projects (a total of 11 office buildings) brought 691,000 sqm onto the market, about three times that of the same period in 2018.
However, Savills sees cause for optimism in the way the market turned from negative to positive absorption in the quarter (of 275,000 sqm). This indicated that bulk discounts were working, although average rents fell 5.2% QoQ 10.2% YoY, to RMB 208.3 sqft/month.
Savills predicts that this year’s “special situation” – i.e., the surge in office supply, primarily in the Qianhai special economic zone – will end soon and vacancy rates are nothing to be worried about.
Rental levels in Hong Kong remain well above Shenzhen and Guangzhou, Savills notes, averaging around RMB 879.8 sqft/month, or 3.6 times the two big cities in Guangdong. Moreover, the gap has widened with the smaller GBA cities, with the multiple reaching as high as 16 times.
This gap ought to be closed in the coming years as the GBA’s infrastructure development plan continues to bring the cities closer together, Savills says. A “one-hour traffic circle” will be formed by high-speed railways, which will lead to a “new urban labor division system” being gradually formed as human resources spread out from densely populated urban centers. For the cities outside of the big three, it will be “an important development opportunity”.