No surprises

July 20, 2011 / By

As someone who has seen the rapid growth of real estate in China firsthand, I am no longer surprised by mind boggling numbers that the market throws up on occasions. Take for example the southern Chinese city of Guangzhou. Over the next 5 years, an estimated 2.4 million sqm of new Grade A office supply is expected to be completed in the city; half of which will be completed over the next 2 years. Conventional wisdom suggests that flooding the market with such a large quantity of new supply should lead to a sharp rise in short term vacancy rates and pressure on rentals.

Yet as we past the half way mark of 2011, vacancy rates remain broadly stable, up but only slightly, and rents have continued to creep higher. What’s more, the level of pre-leasing in upcoming new buildings indicates that the overall vacancy rate in the Grade A office market is likely to trend down rather than up as the new supply is completed through the remainder of this year; 95% of the 620,000 sqm of new supply scheduled for completion in 2011 has already been pre-leased and we estimate that the occupier market will end up growing by close to 700,000 sqm by the end of the year.

Anywhere else in the world, such levels of demand would be unprecedented. But as I have come to realise, there are no surprises when it comes to China.


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