APPD Market Report Article

Shenzhen

December 1, 2021

-1.4%

RMB 209

Rents
Stable

Leasing demand from the TMT sector continues to grow in 3Q21

  • Shenzhen’s Grade A office market has shown improvement over the last three quarters. Leasing demand across various industries trended upwards owing to multiple large-size transactions. Grade A net absorption amounted to over 623,000 sqm in the quarter, achieving nearly 95% of last year’s total level. After excluding self-use areas, the total leased office area also reached a record high.
  • The overall Grade A office market witnessed significant demand from relocations, with expansion and new setups from both TMT and financial industries as they grew in scale. Several buildings suffered from the sharp downsizing of the education industry in the short term. Nevertheless, the negative impact of education tenant outflow was offset by strong demand from other industries.

Vacancy continues to decline in 3Q21 with seven new completions

  • Seven Grade A office buildings, namely Guosen Securities Plaza, SF Headquarters, Qianhai Holding Building Tower 1, Tairan City, Shenzhen Gemdale Vision Center, Kuang-Chi Future Center and One Avenue (Main Tower), were completed in the quarter. With three self-use headquarters, the total Grade A stock in Shenzhen increased to nearly 10.6 million sqm by end-3Q21.
  • Steady growth in office demand combined with a large volume of self-use and pre-leased spaces in new supply led overall Grade A vacancy to drop by 0.6 ppts q-o-q to 21.3% in 3Q21. All core submarkets have improved or at least maintained their vacancy levels during the quarter. Particularly, the Qianhai precinct recorded the largest decrease of nearly 10 ppts q-o-q.

Overall rent stabilised with a slight increase in 3Q21

  • The overall rent of Grade A office in Shenzhen remained stable in 3Q21, with a slight increase of 0.2% q-o-q on a chain-linked basis. Supported by strong leasing demand and stable occupancy rates, the absorption pressure was relieved which acted to reinforce landlords’ confidence. Consequently, most buildings slightly increased or at least maintained the same rental level as the previous quarter.
  • In 3Q21, four transactions were recorded including one en-bloc sale of Chow Tai Fook Qianhai Finance Building (South Tower), and three strata sales of projects by China Resources Land in Qianhai and Luohu. Among which, self-users accounted for the majority.

Outlook: Qianhai’s growth will likely spur new setups and expansions

  • Shenzhen’s economy is expected to remain relatively resilient and maintain its stable recovery trend. As the city’s core mission of developing the financial and technology-driven economy remains firm, these two pillar industries are likely to continue to serve as the main driver for the office leasing market. After Qianhai’s expansion, industrial upgrading will drive new office demand.
  • The new supply of Grade A office for the next 12 months will be around 1.4 million sqm, suggesting continued oversupply in the market. Thus, the Grade A vacancy rate is expected to trend slightly higher and thus the overall rent will likely edge down. Nevertheless, rent polarisation in different submarkets is expected.

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

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