This photo dated March 18, 2016 shows a commercial building in Shenzhen. (PARKER ZHENG / CHINA DAILY)
Shenzhen’s commercial property market is expected to face further pressure in the second quarter of 2022 as new supply intensifies competition, but the city’s stable economic growth, favorable policies it enjoys and pent-up demand from Hong Kong investors would provide support for the healthy development of the industry, international real estate services provider Savills said.
Nearly 450,000 square meters of new Grace-A office space are expected to come onto the market from April to June, according to the firm. The city had approximately 9.4 million square meters of Grade-A offices as of the end of March.
We can see pent-up demand from a number of Hong Kong investors. Once the border is reopened, that demand will be unleashed and we will see the recovery of market activities.
Ray Wu, managing director of Savills Shenzhe
Impacted by the large amount of new supply and a resurgence of the COVID-19 outbreak, Shenzhen’s office market could remain in a downward trajectory in the second quarter, with vacancy rates rising and rental prices falling further, said Carlby Xie, head of research at Savills Southern China.
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Rental demand for Grade-A offices in Shenzhen softened in the first quarter, with net take-up slumping 82.8 percent quarter-on-quarter to 76,000 square meters. Low demand and high supply resulted in an increase in the vacancy rate of Shenzhen’s Grade-A offices, which edged up 0.1 percentage points to 22.8 percent compared with the previous quarter, ending a four-quarter decline.
Average monthly rents dropped to 182.9 yuan ($28.7) per square meter, down by 0.9 percent.
“Despite the facts, we are upbeat over the outlook of Shenzhen’s commercial property market”, as the city’s economic development enjoys favorable policies as a part of the Guangdong-Hong Kong-Macao Greater Bay Area and a pilot demonstration area for socialism with Chinese characteristics, Xie said.
Shenzhen’s economy expanded by 6.7 percent year-on-year in 2021.
Ray Wu, managing director of Savills Shenzhen, said deeper integration in the Greater Bay Area is driving more Hong Kong companies to set up offices in Shenzhen, fueling greater demand for commercial properties and property investments.
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“We can see pent-up demand from a number of Hong Kong investors. Once the border is reopened, that demand will be unleashed and we will see the recovery of market activities,” he said.
More broadly, in the Greater Bay Area, the industry is expected to face challenges this year amid uncertainties in the global political and economic situation, according to Savills.
The rent index of Grade-A offices in the 10 cities in the southern region excluding Macao, dropped by 1.9 percent in the second half of 2021, compared with six months earlier.
Shenzhen was the only city to record positive growth in the index over that period. Hong Kong’s rent index fell below that of Shenzhen and Guangzhou for the first time, dragged down by factors including fluctuations in the stock market, the COVID-19 outbreak and a slowdown in demand from Chinese mainland companies.
Despite the positive economic outlook for the GBA, challenges persist in the office
sales market as many developers and landlords are still facing financial strain and the global economic and business environments remain uncertain, Xie said. The GBA Grade-A office price index is projected to decline again in the first half of 2022, he said.