APPD Market Report Article


May 26, 2024

Silvia Zeng, Head of Research, South China


RMB 165


Upgrade demand drives net absorption

  • Enquiries improved after the Chinese New Year holiday, while renewals remained the dominant choice as most existing tenants were guided by the government’s cost-saving strategy. The favourable rents continued to attract tenants with upgrade demand to relocate their office space from non-Grade A buildings.
  • The positive momentum was fuelled by TMT and Professional Services companies with promising revenue projections. Examples included companies that provided overseas study solutions, and gaming companies recorded several sizeable deals for expansion in 1Q24.

Vacancy stays flat in 1Q24

  • One new Grade A office project, the Hanyin Plaza in Guangzhou International Financial Town, was completed, contributing approximately 100,000 sqm to the total stock. The newly-completed project got off to a relatively good start in the leasing process, putting little pressure on the overall vacancy rate.
  • Nearly half of the existing projects improved their occupancy in 1Q24. The leasing market in Pazhou, in particular, was relatively active, and the vacancy level of the submarket saw a notable decline. Therefore, the citywide vacancy level stayed unchanged from 4Q23, at 21.3%.

Rents report a narrowing decline

  • As cost-sensitive tenants dominated the leasing market, Guangzhou’s overall rents stayed on a downward trend in 1Q24. However, for projects with significantly improved occupancy, landlords were less flexible in rent negotiations. Therefore, the overall rent decline narrowed to 0.4% q-o-q on a chain-linked basis.
  • The investment appetite for office assets remained subdued in 1Q24 under investors’ concerns over occupancy, rents and returns. As a result, the citywide yield decompressed slightly q-o-q in 1Q24.

Outlook: The trend of cost-saving relocations is likely to continue

  • Despite the fact that companies with considerable revenue potential, including mobile gaming and education consulting, may continue to support the incremental leasing demand, cost-saving relocations to upper-grade buildings are expected to stay as the main leasing demand. Thus, landlords are likely to keep softening rents to attract rent-sensitive tenants.
  • Nearly 930,000 sqm of new supply is set to enter the market in the next 12 months. Since only around 40% of the space is leasable, the increase in the citywide vacancy rate is expected to be moderate.

Note: Guangzhou Office refers to Guangzhou's overall Grade A office market.

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