Shenzhen decentralised office market outlookOctober 5, 2020 / By
Shenzhen recently celebrated the 40th anniversary of the Special Economic Zone establishment. Over four decades of tremendous growth, GDP in Shenzhen grew at a CAGR of 21.5%, and the city’s population grew at a CAGR of 10.8%.
Since 2000, Grade A office stock grew thirty-fold to approximately 9 million sqm (GFA). Geographically, office development is now in the process of shifting from the CBD to decentralised areas. Currently, 17.4% of the Grade A office stock is located in decentralised areas, and we expect this to reach 40% by 2024.
Known as the Silicon Valley of China, office demand in Shenzhen is — and will continue to be — fuelled by robust growth in Technology, Media, and Telecommunications (TMT) industries. A growing share of this demand is flowing into newer, emerging sub-markets.
Similar to Shanghai, we define the mature office areas as Caiwuwei, Huaqiangbei, Futian CBD, Chegongmiao, High-tech Park and Houhai, which form a set of “inner-ring” locations. The emerging areas include Qianhai, Bao’an Central, Liuxiandong HQ Base, the North Station Business Area and Sungang. These locations are positioned along Metro Line 5 and form a “middle-ring” of decentralised locations.
Figure 1: : Distribution of Shenzhen Core and Decentralised Location
In terms of demand, the TMT and finance industries together accounted for 50-70% of the office leasing volume across the whole market in recent years, including the newer “middle-ring” locations.
Within the “middle-ring”, new office spaces are built to a higher standard of quality but charge lower rental rates. The lower rents become attractive to tenants looking to upgrade and expand from nearby offices. Meanwhile, high-tech companies are moving their headquarters and sales/operation departments to new, higher-quality offices to be closer to key talent pools, sales markets, and manufacturing facilities.
The decentralised markets are also luring firms out of CBD locations. One notable case was OPPO, a Guangdong-based smart device company that consolidated all of its CBD offices into an 80,000-sqm building in Qianhai in 2Q20.
Cost-saving is not the only motivation. Limited land supply within “inner-ring” areas is also spurring TMT and financial giants to look beyond the core areas for large parcels of land where they can build headquarter campuses.
A more extensive inter-city high-speed railway network, as well as a new metro line serving the “middle-ring”, give tenants the confidence to relocate out of the traditional CBD areas. Some decentralised office areas will soon enjoy even greater connectivity than CBD areas within a few years. For example, the Shenzhen North railway station and the upcoming Xili station will provide improved accessibility to Guangdong Province and neighbouring provinces. Tenants located on “middle-ring” will be well-positioned to satisfy their requirements for labour, facilities and suppliers across the region.
Figure 2: Shenzhen Two-Hour Economic Circle
Source: China Railway Customer Service Centre; JLL
In conclusion, both the CBD and decentralised areas are expected to experience sustained demand. Although we expect rental growth to be limited in most decentralised areas due to a strong supply influx, the bulk of the supply is scheduled to be completed by 2030, and we can expect the markets to reach a greater level of maturity from 2025 to 2030.
To see more details, please download the report Shenzhen at its 40s to see its emerging office market flourish.
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