As the hub city in west China, Chengdu is seeing an increasing demand from large occupiers in its office market, following a similar trend observed in China’s Tier I cities. However, there is still a wide spread of size requirements among those large occupiers. We recently conducted a survey and released a research paper titled 2015 Top50 Office Tenants in Chengdu to analyse the characteristics of those large tenants.

We reviewed a total of 3,400 occupiers in 34 Grade A office buildings in 4Q15. Below are the key findings:

• The Top50 Tenants, 1% of the total number of occupiers reviewed, take up 15% of the total occupied space. In terms of space occupied, the threshold for the Top50 Tenants in 2015 is approximately 2,060 sqm, while their average occupied space is 4,690 sqm, nearly ten times the 470 sqm per company market average.
• Among the Top50 Tenants, the banking and financial services industry is the most prominent with 11 companies ranked high in the list. It is followed by insurance and real estate related companies. In terms of company origins, 19 of the Top50 Tenants are Sichuan-based companies. Among the rest, 18 are domestic companies and 13 are multinationals.

Chart: 2015 Top50 Tenants Number by Origin and Industry

• The Top50 tenants spread out across 22 different buildings, of which only six are strata-titled projects. It is not surprising that sizeable tenants prefer buildings with single ownership in order to more effectively align operations with long-term business plans.
• The survey also shows that the City Centre, the most mature and expensive office sub-market, houses the largest number of the Top50 Tenants. Due to the relatively low rental level in Chengdu, office occupancy costs account for a very small portion of companies’ total business costs, i.e. 5-10%. Well-established amenities in the City Centre remain a major factor for business location decisions in Chengdu. In fact, many large tenants revealed that they will not consider relocation to emerging areas for the sake of saving occupancy cost.

Looking ahead, Chengdu’s Grade A office market will continue to see large new supply, elevating the vacancy rate in 2016. However, from tenants’ perspective, the delivery of new projects will provide them with more options for office accommodation. On the other hand, rising competition will weaken landlords’ pricing power during negotiations for new lettings and renewals. We expect a growing number of large-size leasing transactions to take place in 2016, particularly driven by upgrading and expansion requirements from insurers, banks, and other financial services companies as well as business centre operators. With such momentum, the Top50 Tenants list will continue to evolve over the next few years.

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