The 2008 global financial crisis brought much of the global economy to its knees and repercussions continue to play out till this date. Yet against such a challenging backdrop, annual net demand for Grade A office space across the twenty cities that we track in China recorded astounding growth from just 1.4 million sqm in 2009 to 4.3 million sqm in 2011. Nowhere is the explosion in Grade A office demand more obvious than in Beijing, where record high net absorption brought the vacancy rate from 28.1% in 2009 down to just 9.1% by the end of 2011.

One factor that contributed to the Grade A office demand expansion is the government’s persistent efforts in developing the financial sector. Hardly a month goes by without hearing of fresh developments in the sector and new areas of businesses opening up. Even for existing policies such as QFII and QDII, continued expansion of the schemes means that the pie is enlarging, which translates into increased business volumes and more demand for quality office space.

What is more interesting, however, is the coincident trend of domestic firms’ increasing demand for Grade A space. Although the data is patchy, we can get a feel of how this trend has likely developed by looking at the pie charts below. Both buildings are in the same location and are good representations of top quality office space during their respective dates of completion. In both cases, we were also the sole leasing agent and the contrast in proportion of domestic presence pre- and post-financial crisis is stark.

Thanks to the financial crisis, Chinese companies have seized the opportunity to acquire foreign companies for various reasons including attractive valuations, access to resources, technologies or new markets. They are also getting more competitive at home as revealed by a recent survey conducted by China Europe International Business School (CEIBS). Competition from Chinese firms now ranks as the second biggest challenge to foreign enterprises in China. The rise in the aspirations of domestic companies has influenced how they want to be perceived, including the type of office space they occupy. Image aside, they are also giving more attention to the additional competitive edge gained from operating within a conducive environment, such as staff attraction and retention as well as improved productivity. All this would result in domestic firms being an ever more important source of demand for Grade A office space going forward.

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