Market demand faces challenging recovery

• Most companies maintained their cost-saving strategies, preferring to renew leases at the end of the lease term with a discount. Particularly, some small and medium-sized enterprises contracted lease sizes or moved out from Grade A offices.
• However, certain enterprises from cross-border e-commerce-related industries, smart manufacturing and educational advisory services that were relatively optimistic about the future continued to execute office expansion plans.

New supply drives up citywide vacancy rate

• Five new buildings entered the market in Q3 2024, adding a total of around 540,000 sqm of supply to Shenzhen’s Grade A office market. More than 70% of the area is concentrated in Qianhai.
• The citywide vacancy rate rose to around 26.5% at the end of the third quarter due to the completion of new buildings and some older buildings that experienced tenant outflow.

The downward trend in rents continues

• Landlords, facing limited incremental demand, reduced rents to attract new tenants and to retain existing tenants. As a result, average rents continued to decline by approximately 2.4% q-o-q.
• Given the falling rents and the large upcoming supply, investors remained cautious about Shenzhen’s office properties while demanding high cap rates, leading to further decompression of office investment yields.

Outlook: Policy stimuli may warm market sentiment

• A series of measures were introduced at the end of September, including monetary easing and targeted measures for the property and securities markets. These are expected to contribute to the gradual restoration of confidence in the property market.
• The recovering demand will hardly absorb the 1.2 million sqm of new supply expected in the next 12 months. Therefore, the citywide vacancy rate is expected to keep climbing. As market competition intensifies, the average rent is still projected to trend downwards.