APPD Market Report Article


November 29, 2022

Silvia Zeng, Head of Research, South China


RMB 170


Leasing demand stays relatively weak in 3Q22

  • During 3Q22, as sporadic COVID-19 outbreaks in multiple cities impacted both the national and local economies, and pandemic prevention policies were subject to changes ahead, many companies remained conservative and cautious towards business expansion and leasing plans. Hence leasing demand continued to be restrained in 3Q22.
  • Pazhou remained a major contributor to the overall net absorption as its ample supply of economical leasing options made it more affordable to cost-sensitive companies which had expansion needs, especially when compared to core submarkets such as Zhujiang New Town (ZJNT). For example, a gaming company leased around 8,000 sqm of office space in the Pazhou submarket.

Two Grade A office buildings complete in 3Q22

  • Two buildings, one in ZJNT and one in Guangzhou International Finance Town (GZIFT), were completed in the quarter, together adding over 250,000 sqm to Grade A office stock. The total stock in Guangzhou surpassed 7.7 million sqm by the end of 3Q22.
  • Given the sluggish leasing demand in 3Q22, vacancy rates of most buildings were relatively consistent. As there were new completions entering the market, the overall vacancy rate in Guangzhou continued to rise by approximately 2.0 ppts to around 17.6% by the end of 3Q22.

Overall rents stay relatively consistent in 3Q22

  • After several quarters of decline, overall rents were relatively low, and room for any further drop was compressed. The lease withdrawals in ZJNT during previous quarters did not impact many landlords in 3Q22; only a few of them lowered rents in the quarter due to consistent vacancy issues. Overall rents remained largely stable and fell marginally by 0.1% q-o-q in 3Q22.
  • No en-bloc transaction was recorded in 3Q22. Existing end-users with active demand had likely already determined their targets and were no longer active in the market. Due to slowing economic growth, incremental demand from new end-users were lacking, and investors were cautious about investing in office properties. With weakening demand, overall capital values dropped marginally by 0.2% q-o-q.

Outlook: Recovery of leasing demand still in progress

  • In the short term, Guangzhou’s economy may still be affected by unstable factors such as potential COVID-19 flare-ups and changes in the external environment. Companies will take time to recover their confidence, which can impact leasing demand. In 2H22 especially, the leasing market is expected to maintain its current momentum, and is likely to lack bright spots.
  • More than 800,000 sqm of office supply is scheduled to enter the market in the next 12 months, putting additional pressure on the overall vacancy. The rising vacancy could cause anxiety for landlords, affecting their bargaining power. Given such expectations, overall rent growth is likely to be rather limited in the short term.

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

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