Grade A office demand was slightly subdued in China at the beginning of this year, partially due to the deleveraging policy and current economic uncertainties. However, we continue to see steady growth from the technology sector, which will represent an increasingly important demand driver in the future as newly released supportive policies continue to stimulate the growth of this sector. Additionally, companies in traditional industries are also expanding their tech-related functions.
Policy stimulus to drive technology sector growth
The announcement in 2019’s “Two Session” further supports technology companies’ development by issuing the rules of the new science and technology innovation board (STIB). This board is specifically set up for high-tech and strategically emerging sectors of vigorous growth potential, such as new generation IT, advanced equipment, new material and energy, and biomedicine. The pilot registration-based STIB features faster IPO process with higher market efficiency and transparency than the traditional approval-based system of A-share market. Shanghai Stock Exchange has already accepted 77 companies’ documents as at mid-April. Increasingly financing channels will further spur growth in the tech and related sectors, which will translate to increasing office demand.
Office space demand by tech firms recognized nationwide
While Tier I cities continue to receive strong demand from technology companies for headquarters and front-office uses, Tier II cities are also receiving more inquiries from technology companies, especially from unicorn companies. In addition to a few established tech hubs such as Hangzhou, tech giants are seeking back-office opportunities in Wuhan, Chengdu, etc. to leverage lower personnel cost and more affordable office rents compared to Tier I cities. Examples include Meituan’s set-up of a new 6,800 sqm call center in Chengdu, and Lenovo’s expansion in Wuhan with a big-data center of 6,120 sqm.
Figure 1 : Share of Grade A office demand in China’s key cities in 2018
Source: JLL Research
Note: Tier I cities include Beijing, Shanghai, Guangzhou, and Shenzhen
Key Tier II cities include: Hangzhou, Wuhan, Chengdu, etc.
Growing technology demand from traditional industries
Apart from the increase in office demand from the growth of tech companies, we have also discovered a spike in demand from traditional companies due who wish to expand their internal tech functions. Traditional companies are embracing tech, such as AI capabilities, to enhance their business performance; retailers are setting up online shops to promote sales; professional services companies are heavily investing in technology to deliver better results to clients; and financial companies are also actively investing in AI to improve profits. For example, in Shanghai, Sinochem, a state-owned enterprise, expanded a whole floor to setup its new online sales platform department. In Beijing, China Construction Bank leased 5,500 sqm for its new technology subsidiary.
In China, the growth of technology sector is policy-driven, nationwide, and even beyond the sector itself. Such growth will continue to stimulate office demand in key China cities.
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