APPD Market Report Article

Shenzhen

August 26, 2022

Silvia Zeng, Head of Research, South China

-0.8%

RMB 208

Decline
Slowing

Leasing demand recovers at a slower pace

  • Facing multiple uncertainties in the economy, most industries have become more cautious with expansion strategies, leading to a mass reduction in new office space demand. Thus out of the 239,000 sqm quarterly net absorption, 30% was for company headquarters, while that of leasable space fell by 40% y-o-y.
  • Amid the cooling of the Shenzhen office market, demand from the financial and TMT sectors remained dominant, accounting for more than 60% of all lease transactions in 2Q22. Within that, office demand from semiconductor firms and large-scale financial institutions was resilient during a counter-cyclical period, registering sizable transactions during the quarter.

Vacancy increases slightly in 2Q22 with five new completions

  • Five Grade A buildings were completed in this quarter, including three leasable buildings and two self-use headquarters, bringing 386,000 sqm into office market stock. This led the total stock of Grade A offices in Shenzhen to increase to nearly 11.3 million sqm by the end of 2Q22.
  • Thanks to self-use demand, the overall vacancy rate has remained mostly stable with a slight increase of 0.7 ppts q-o-q to 21.3% in the quarter.

Overall rent remains stable with a slight decrease in 2Q22

  • The situation of oversupply in certain submarkets has amplified the landlords’ challenges with vacancy in the Shenzhen office market. In addition, landlords have resorted to utilising a flexible approach in order to retain tenants seeking cost-effectiveness. Hence the overall rent in 2Q22 has declined marginally by 0.7% q-o-q.
  • Four bulk transactions were recorded, mostly from end-users in TMT and finance industries. One of the four was the customised deal that CR Land completed jointly with five leading TMT enterprises on an upcoming project. Another notable sale occurred when Bank of Dongguan bought approximately three floors in Shenzhen Metro Property Building, the largest sale in terms of transaction area in 2Q22.

Outlook: Weakening demand and oversupply put pressure on rents

  • Shenzhen’s economy is currently suffering from various internal and external challenges. Tenants are likely to remain conservative with their expansion plans. Therefore a downward trend in office demand with an annual net absorption of about 1 million sqm, which would be 20% lower than that of 2021, is expected.
  • Over 2.5 million sqm of new supply will come online in the next 12 months, suggesting persistent pressure on absorption. However the pace of demand recovery may not be able to keep up with the supply growth, likely pushing overall vacancy rate up and pressing rents down by the end of 2022.

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

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