Guangzhou, a major Tier-I city in South China, is witnessing unprecedented rental growth in the office market, with an uptrend that began in the second half of 2017.
Guangzhou’s core CBD, Zhujiang New Town (ZJNT), where over 60% of Guangzhou’s Grade A office stock is sited, saw a period of absent new supply from 3Q17 onwards while demand remained persistently high. Consequently, Guangzhou’s overall rents were elevated by approximately 6% between 3Q17 and 1Q18, outpacing the growth rate of any other Tier-I city in mainland China.
The market is definitely bustling, but can the momentum be sustained? Considering the following factors, we foresee a continuingly flourishing office market in Guangzhou that supports the potential for more outstanding rental growth over the next few years.
- New opportunities brought about by the Greater Bay Area (GBA)
The GBA framework aims to integrate the various resources and promote collaboration between Hong Kong and South China. As South China’s transportation and commerce centre, Guangzhou’s positioning as a regional hub will be further strengthened, so will its business ties and industrial connections with Hong Kong, which is an international port and financial centre, as well as with other cities in the region. In addition, the new transportation infrastructure will greatly boost regional accessibility, causing Guangzhou’s office market to welcome an influx of new demand from other GBA cities.
- China’s financial services sector opening-up
Recently, the People’s Bank of China had indicated that China will further open up its market to foreign financial services providers, giving them permission to participate in a wider range of activities in mainland China. Given Guangzhou’s strategic significance in the GBA and in China, it is highly likely to find a greater number of foreign and Hong Kong-based banks and insurance companies opening up new offices in the city in the coming years.
- Fast expansion from emerging industries
A major source of office leasing demand in China, high-tech and internet companies are demonstrating strong intentions to upgrade and expand into Grade A office buildings in the GBA. These emerging industries will continue to make progress aided by the collaborative development of the region. We believe new media, software development, e-commerce and rising co-working services will expand at a faster rate than other industries and absorb considerable new availabilities.
- Landlord favorable market
Most of Guangzhou’s future supply will come up in emerging submarkets, whereas ZJNT will only see limited new supply in the next few years. In light of this, most landlords in the core CBD are becoming more selective in choosing tenants and less likely to give rental concession. As most high-end services with high financial capacities cluster in the core CBD, rental growth of premium Grade A offices may further accelerate.
Growing demand and hardline landlords – it seems that from now on, it will only get harder and more expensive to rent an office space in Guangzhou, especially in the core CBD.
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