APPD Market Report Article


February 22, 2024

Silvia Zeng, Head of Research, South China


RMB 173


Net absorption increases significantly in the fourth quarter

  • With the gradual recovery of office leasing demand, the net absorption of 4Q23 stood at around 213,000 sqm, over 70% of which came from market leasing, with the rest from companies’ self-use headquarters or strata-sale projects.
  • Yet, overall business uncertainty continued to cast a shadow on many companies’ growth expectations, impacting future real estate strategy decisions. Towards the end of 2023, fewer active office leasing enquiries were still open in the market.

Overall vacancy rate spikes with seven new project completions

  • In the fourth quarter, seven Grade A office buildings were completed, adding around 650,000 sqm to the total stock. A few of these new projects passed final inspections at the very last minute. As a result, limited occupancy was recorded by the end of the quarter, and the citywide vacancy rate jumped to 25.5%.
  • As office leasing demand slowly picked up, the average vacancy rate of stock projects continued to improve by 1.4 ppts.

Average capital value in Shenzhen falls drastically

  • Overall rents continued to fall by 2.5% q-o-q due to the persistent vacancy in existing projects and the large volume of new completions in 4Q23. In addition, facing difficulties with pre-leasing, newly-completed offices now offer rent quotes that are perceivably lower than their competitors.
  • A large volume of bulk or en bloc investment transactions was recorded in 4Q23, with average prices dropping massively compared to historic values, quotes from within the same building, and their competitor projects. Therefore, investment yields in Shenzhen’s office market began decompressing due to heavy discounts.

Outlook: Rents to continue falling under high vacancy pressure

  • In the next 12 months, there is expected to be 1.3 million sqm of new Grade A office supply in Shenzhen. Despite having a relatively high degree of self-use, the persisting uncertainties on the demand side should continue to pose challenges to the overall absorption, and the citywide vacancy rate is likely to rise above 26% by end-2024.
  • A large wave of lease expirations is anticipated to occur in 2024. Adding to the fact that many pending projects have now joined the competition with discounted preleasing rents, Shenzhen’s average Grade A office rent might remain on a downward trend in the near future.

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

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