Self-use demand dominates quarterly net absorption

• As uncertainties in the future business environment persisted, firms were hesitant about expansions due to budget considerations, and some even decided to surrender or downsize leased space. Thus, the incremental leasing demand for office space remained limited in Q4.
• Companies gradually moved into their recently completed headquarters, resulting in the net absorption of Q4 2024 being mainly attributable to self-use demand for headquarters office space.

Companies moving to self-use buildings leads to a fall in vacancy rates

• One new building, which is a wholly self-use headquarters building in the Qianhai submarket, entered the market in Q4 2024, adding a total of around 100,000 sqm of supply to the Grade A office market.
• Triggered by lower rents, occupancy levels in existing leasable projects continued to improve. Coupled with the consistent move-in of self-use headquarters space, the citywide vacancy rate fell to 24.4% at end-Q4 2024.

Rents continue to decline due to oversupply

• In the face of limited incremental leasing demand and pending new supply, landlords offered further rent reductions to attract tenants and retain existing ones. Consequently, average rents of Shenzhen saw a continuous decline of around 2.8% q-o-q.
• Investors demanded an increase in cap rates owing to uncertainties in the future occupancy rates of office buildings and the foreseeable reduction in rental income.

Outlook: Increasing vacancy pressure may lead to further rent cuts

• Although policy stimuli might warm market sentiment, companies are expected to remain cost-conscious, limiting real estate budgets. It is, therefore, expected that recently completed projects in emerging areas with lower rents will be attractive for relocation demand.
• In the next 12 months, 1.5 million sqm of new supply may enter the market, mostly for leasing. Landlords will need to provide further discounts and incentives to attract tenants. Thus, vacancy rates may continue to climb, while rents may decline further.