china office outlook - cushman &...

A Cushman & Wakefield Research Publication

CHINA OFFICE OUTLOOK

2014 - 2015

2

CHINA

OFFICE

OUTLOOK

TABLE OF CONTENTS

2014 REVIEW……………………………………….3

BEIJING………………………………………………...5

SHANGHAI……………………………………………7

GUANGZHOU………………………………………..9

SHENZHEN…………………………………………....11

CHENGDU……………………………………………13

2014 INVESTMENT…………………………………15

OUTLOOK 2015 & 2016……………………………16

3

CHINA

OFFICE

OUTLOOK

China’s economy continued to cool in 2014 and a variety of factors are likely to further constrain economic

growth in the coming years. This slower expansion fuels increasing concern regarding other measures of

economic health in China, such as employment, household income, consumer spending, fiscal revenue, and

financial system stability.

A sluggish residential real estate market, high levels of local government debt in some cities and industrial

overcapacity remain major risks for China’s economy. Nevertheless, the central government appears willing to

confront these challenges while pushing forward with liberalizing measures intended to unleash further growth.

Despite all of this, Grade A office markets in the cities of Shanghai, Beijing, Guangzhou, Shenzhen and Chengdu

generally sustained strong business demand on the back of relatively limited levels of supply.

Overall Effective Rent (Grade A), 2007 – 2014

Effective Rent is calculated based on gross floor area and assuming a letting to a multinational

tenant occupying mid floors for a typical three-year lease term with rent-free periods factored in.Source: Cushman & Wakefield Research

Shenzhen office projects outperformed the market with

strong rental growth of 11% during the year whilst

elsewhere, Grade A rental levels in other first-tier

markets were generally stable. Nevertheless, Chengdu

rents slid by 3.8% and market vacancy rose to an

unenviable 28.4%.

Beijing still holds the title of the most expensive Grade A

office market in China, with average rental rates finishing

the year at RMB 377.5 per square meter per month, a

significant 24.4% above the next most expensive market,

Shanghai, at RMB 303.4 per square meter per month.

Despite this rental price differential, Shanghai is still the

undisputed leader in terms of premium-quality office

property, being home to a substantial 1.1 million square

meters of premium accommodation.

2014 REVIEW

0

50

100

150

200

250

300

350

400

450

Q1-0

7

Q2-0

7

Q3-0

7

Q4-0

7

Q1-0

8

Q2-0

8

Q3-0

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Q4-0

8

Q1-0

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Q2-0

9

Q3-0

9

Q4-0

9

Q1-1

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Q1-1

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Q2-1

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Q3-1

4

Q4-1

4

Beijing Shanghai Guangzhou Shenzhen Chengdu

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

2007 2008 2009 2010 2011 2012 2013 2014

Beijing Shanghai Guangzhou

Shenzhen Chengdu

Vacancy Rate, 2007 – 2014

Source: Cushman & Wakefield Research

4

CHINA

OFFICE

OUTLOOK


City Property Tenant SQ.M. Submarkets Core/Emerging Submarkets

1 Shanghai Caohejing Office Building II Johnson & Johnson 35,943 Caohejing Business Park

2 Beijing China World Phase III B Shell 30,000 CBD Core

3 Beijing Huitong Times Plaza Cheetah Mobile 30,000 Other Other

4 Beijing Wangjing SOHO Touch Media 23,000 Wangjing - JXQ Emerging

5 Beijing Potevio Innovation Park A Home Link 22,300 Wangjing - JXQ Emerging

6 Shanghai The Hub Roche 20,628 Hong Qiao Hub Emerging

7 Beijing Zhao Lin Plaza JD.com 20,000 Business Development Area Emerging

8 Shenzhen Vision Shenzhen Business Park DJI Innovations 19,000 Houhai Emerging

9 Shanghai 5 Corporate Avenue Dentsu Aegis 18,781 Huangpu Core

10 Beijing FFC Samsung 18,000 CBD Core

Top 10 Office Leasing Transactions in 2014, By Size

Leasing was strong from sectors such as finance, manufacturing and technology and there were a number of high-

profile consolidations such as Shell and JD.com in Beijing. In Shanghai, many high-profile companies such as Dentsu

Aegis, Henkel and Nike consolidated or relocated to the new developments this year. Johnson & Johnson also

recently agreed to consolidate and expand its office in Caohejing Office Building II.

6

CHINA

OFFICE

OUTLOOK

-3.00%

2.00%

7.00%

12.00%

17.00%

22.00%

27.00%

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F 2018F

Annual New Supply Annual Absorption Year-end Vacancy Rate

Review

The Beijing office market saw reasonable levels of transaction activity

and low rental and vacancy rate volatility in 2014. Annual absorption

in core submarkets turned positive for the first time in three years,

indicating increased office leasing activity in contrast to the previous

two years. In another positive sign for the leasing market, newly

launched projects in 2014 achieved healthy pre-leasing rates in the

range of 50 to 70%. In Beijing's five core submarkets, the average

effective rent for Grade A offices remained stable over the year,

experiencing a slight reduction of 0.6% year-on-year to settle at RMB

377.5/sq.m./mo. The overall vacancy rate declined over the first half

of the year due to a lack of new supply. Following this, three new

projects launched to the market in the third and fourth quarters, the

impact on the vacancy rate was limited due to pre-leasing activity.

The average vacancy rate increased moderately from the third to the

fourth quarter, reaching 5.99% by year-end, a figure almost 1

percentage point lower than at year-end 2013. Among the emerging

submarkets, Wangjing-JXQ is gaining popularity among corporate

occupiers. The average effective rent for Grade A offices in the

submarket climbed by 3.5% year-on-year, while vacancy remained

low at just 2.9%, suggesting considerable untapped demand in the

area.

Outlook

We expect that Grade A office rents in core submarkets will remain

stable in 2015. In emerging submarkets, further supply of high-quality

offices launching to the market is anticipated to support moderate

rental growth despite the overall vacancy rate increasing slightly. As

these emerging submarkets continue to mature this evolution will

foster a decentralization trend for some businesses as their site

selection strategies diversify. Business parks will become a favoured

location for certain industry sectors due to their attractive rental

levels, preferential government policies and comprehensive business-

friendly support services. Developers, keen to stay competitive by

catering to the needs of corporate occupiers, are also becoming

increasingly aware of such trends. As a result, future projects will

have emphasis placed on ensuring higher rates of floor area

efficiency, attractiveness to employees, and improved flexibility in

office design to meet the needs of modern office tenants.

2014 SIGNIFICANT LEASE TRANSACTIONS*

PROPERTY TENANT SQ.M.

China World Phase III B Shell 30,000

HuitongTimes Plaza Cheetah Mobile 30,000

Wangjing SOHO Touch Media 23,000

Potevio Innovation Park A Home Link 22,300

Zhao Lin Plaza JD.com 20,000

FFC Samsung 18,000

Minsheng Financial CenterChina Jianyin

Investment12,300

JM Center VW Finance 11,000

Hanwei International Plaza Amazon 10,000

DRC Office Building German Centre 10,000

* Renewals are not included in leasing activity statistics

sq.m. Vacancy Rate (%)

Forecast

ABSORPTION & VACANCY RATE OF GRADE A OFFICE, 2003 – 2018

BEIJING

0

50

100

150

200

250

300

350

400

450

BEIJING OVERALL GRADE A OFFICE ESTIMATED

EFFECTIVE RENTS**, 2003 - 2017

**Effective Rent is calculated based on gross floor area and assuming a letting

to a multinational tenant occupying mid floors for a typical three-year lease term

with rent-free periods factored in.

Est

imat

ed E

ffect

ive R

ents

(RM

B/s

q.m

../m

o)

Forecast

8

CHINA

OFFICE

OUTLOOK



Caohejing Office Building II Johnson&Johnson 35,943

The Hub Roche 20,628

5 Corporate Avenue Dentsu Aegis 18,781

Henderson 688 VF Corporation 8,000

Dawning Center HAVI Logistics 6,352

Standard Chartered Building Feng Tai Insurance 5,000

IFC IIHanas New Energy

Group4,800

Garden Square Grandall Law 4,200

The Hub Grundfos 3,818

Kerry Center Tower 2 Guo Tai Fund 3,650



Forecast

ABSORPTION & VACANCY RATE OF GRADE A OFFICE, 2006 - 2017

-5%

0%

5%

10%

15%

20%

25%

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F

Annual New Supply Annual Absorption Year-end Vacancy




Est

imat

ed E

ffect

ive R

ents

(RM

B/s

q.m

./m

o)

Forecast

0

50

100

150

200

250

300

350

400

Review

In 2014, the Shanghai CBD office market saw softening rents in the

Puxi area, whereas rents in Pudong’s Lujiazui and Zhuyuan areas

continued to rise as availability remained scarce. The downward

rental adjustment in the Puxi CBD was driven by the combined

impact of both new supply coming onto the market at below-

market-average rents, and a handful of relocations of manufacturing

and pharmaceutical companies from Puxi CBD as they consolidated

in suburban areas. Although the overall Grade A vacancy rate in Puxi

dropped from 12.8% a year ago to 8.4% at year-end 2014, this only

occurred at the cost of landlords having to offer lower rental rates.

In contrast, the Pudong office market remained strong, driven partly

by the lack of new supply over the past year, and partly by increasing

demand from local financial companies. Nevertheless, a trend back

to Puxi started to emerge from a number of financial services

companies that relocated back to Jing’an to escape congested and

expensive Lujiazui.

Outlook

Looking forward, the supply dynamic will change with a large amount

of new supply coming to Pudong within the next two years, including

the iconic Shanghai Tower (220,000 sq.m.) and a number of

developments in the Zhuyuan area. This will likely cause Pudong

rents to drop slightly, and many of these properties will come on

line at less than the average rent for this locality. A similar situation

will prevail in Huangpu but, conversely, Jing’an will likely see rents

increasing over the next two years with strong government support,

a growing proportion of new premium-quality projects and

improved transportation infrastructure. The office decentralization

trend will likely continue but will remain limited to tenants in the

manufacturing, pharmaceutical and IT industries, whereas companies

in the key services sectors such as banking and finance, consulting,

media and real estate will choose to remain in the core CBD areas.

SHANGHAI

SHANGHAI OVERALL GRADE A OFFICE

ESTIMATED EFFECTIVE RENTS**, 2006 - 2016

10

CHINA

OFFICE

OUTLOOK



Taikoo Hui Eyugame 5,500

Agile Center Nike 4,650

Agile Center DHL 4,650

Onelink Center AstraZeneca 3,000

Taikoo Hui Consulate of the Canada 2,800

Taikoo Hui PetroChina International 1,300

IFC Luxiang Group 1,100

Leatop Plaza CINS Holding 1,100

China Shine PlazaJiayuan.com

International Ltd.1,000

Kingboard Plaza Avon 1,000


0%

5%

10%

15%

20%

25%

30%

35%

40%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2011 2012 2013 2014 2015F 2016F 2017F


Forecast

sq.m. Vacancy Rate (%)ABSORPTION & VACANCY RATE OF GRADE A OFFICE, 2011 - 2017




Est

imat

ed E

ffect

ive R

ents

(RM

B/s

q.m

./m

o)

Forecast

145.0

150.0

155.0

160.0

165.0

170.0

GUANGZHOU

Review

GDP in Guangzhou registered 8.5% year-on-year growth in the third

quarter and looks likely to settle with moderately slower growth by

the end of the year, yielding an annual output of more than RMB

1.65 trillion. In 2014, Guangzhou’s Grade A office supply grew by an

additional 265,000 sq.m. to reach 3.2 million sq.m., an increase of

9.0% from 2013. Three Grade A office launches occurred this year:

100,000 sq.m. at R&F Yingkai Square, 86,000 sq.m. at G.T. Land

Phase 4 (Tower H, formerly Tower G) and 64,000 sq.m. at Agile

Centre. Job creation in the tertiary sector, particularly from local

finance, insurance and IT companies, was a major factor leading to

the overall vacancy level being almost halved, to reach approximately

7.9% by the end of the year. Despite this substantial absorption, the

average rental failed to record any significant increase, finishing the

year at RMB 156/sq.m./mo. This lack of rental growth reflected an

excess of supply at the beginning of the year that took time to lease

up to reasonable levels.

Outlook

As a result of global and domestic economic headwinds, demand for

Guangzhou’s goods and services will likely dampen in 2015, and GDP

growth may continue to slip under 8.0%. In 2015, Guangzhou’s office

supply is expected to increase by approximately 400,000 sq.m.,

largely consisting of new Grade A buildings located in Pearl River

New City. Intending occupiers are likely to find great deals on offer

as landlords aggressively seek to lease out new space, as well as look

for pre-commitment on future projects, in advance of the spike in

new supply scheduled to launch in 2016 and beyond. Rent and

vacancy levels are likely to remain stable; however, landlords may

increasingly use concessions in the form of longer rent-free periods

to woo occupiers. Over the next five years, additional office supply

pressure will come from newly emerging submarkets near

Guangzhou South Station, in Baiyun District and in the upcoming

International Finance City.

GUANGZHOU OVERALL GRADE A OFFICE


11

CHINA

OFFICE

OUTLOOK

12

CHINA

OFFICE

OUTLOOK




Est

imat

ed E

ffect

ive R

ents

(RM

B/s

q.m

../m

o)



Vision Shenzhen Business Park DJI Innovations 19,000

Vision Shenzhen Business Park Intel 10,000

NEO –Tower AShenzhen Kondarl

Group3,500

Dazhonghua IFCTraveller

Automobile Group3,600

Century PlaceTrade-Link Supply

Chain Management1,900

Avic Center GoPro 1,700

Kerry Plaza II Glory Real Estate 1,700

Kerry Plaza II

China Agroforestry

Low-Carbon

Holdings

1,700

KK100China National

Offshore Oil Corp1,200

Century Place Skyscanner 1,000


0%

5%

10%

15%

20%

25%

30%

35%

40%

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2011 2012 2013 2014 2015F 2016F 2017F


Forecast



Forecast

150.0

160.0

170.0

180.0

190.0

200.0

210.0

220.0

SHENZHEN

Review

Shenzhen’s GDP registered RMB 646.1 billion during the first half of

2014, with reported year-on-year growth of 8.5% during the first

three quarters. Bolstered by government policies, tertiary industry is

growing rapidly and now accounts for 55.8% of Shenzhen’s overall

output. The southern Chinese megacity continues to develop as a

hub of high-tech manufacturing and R&D, with a thriving financial

sector. Overall Grade A office supply grew from approximately 1.96

million sq.m. to 2.22 million sq.m. year-on-year by the end of 2014,

an increase of 13.3%. Notable additions included the launches of the

Investment Bank Building in the Futian CBD submarket and SCC

(Tower A) in the Houhai submarket. Annual absorption of about

122,000 sq.m. tightened the vacancy rate by almost 5.0 percentage

points, down to 6.0%. The overall average rental climbed sharply by

about 11.0% year-on-year to RMB 207/sq.m./mo, driven mainly by

the expansion of domestic service-sector companies as well as the

city’s relatively low base of Grade A office supply.

Outlook

In 2015, Shenzhen’s GDP growth will likely parallel the expected

slowdown of the national economy, putting downward pressure on

leasing demand. However, Shenzhen’s landlord-favorable supply

imbalance – relatively limited Grade A office supply, given the city’s

impressive economic status – is expected to ease this pressure,

allowing for continued rental growth in 2015 even as 250,000 sq.m.

of new space is forecast to launch to the market. Looking further

forward, the year 2016 is projected to see a four-fold spike in new

supply over the previous year. However, rents may peak up until a

significant amount of this accommodation gets released. The supply

boom in 2016 and beyond should eventually shift negotiating power

from landlords to occupiers. We expect the further evolution of the

Qianhai development zone to stimulate additional office leasing

demand in Shenzhen as both domestic and multinational firms seek

to take advantage of the zone’s preferential policies and growth

potential.

SHENZHEN OVERALL GRADE A OFFICE


14

CHINA

OFFICE

OUTLOOK



One Aerospace Center China Construction Bank 4,700

Ping An Fortune Center Ping An Property & Casualty 4,600

IFS Active Network 3,000

Yanlord Landmark Sanofi 2,000

Square One Rider Levett Bucknall 1,900

Raffles City Fuji Xerox 1,700

Sichuan Investment

BuildingXinruihe Insurance 1,700

China Overseas JIC Trust 1,500

Raffles City ABB 1,200

Minyoun Financial Plaza E-House China 1,000





Est

imat

ed E

ffect

ive R

ents

(RM

B/s

q.m

./m

o)

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

200,000

400,000

600,000

800,000

1,000,000

2008 2009 2010 2011 2012 2013 2014 2015F 2016F 2017F


Forecast



Forecast

90

100

110

120

CHENGDU

Review

The Chengdu Grade A office market was characterized by strong

activity in the first half of 2014, driven by demand from the financial

sector, which contributed to over 50% of leasing transactions.

Demand from private-sector financial firms was notably strong.

However, the expansion frenzy of private financial companies slowed

significantly in the third quarter and ground to an abrupt halt in the

fourth quarter. Moreover, the closure of a large number of such

firms in the fourth quarter returned a substantial 40,000 sq.m. or

more of Grade A office accommodation to the market. In the fourth

quarter, the average Chengdu Grade A office effective rent saw its

fourth consecutive quarterly decline to RMB 98.3/sq.m./mo, 3.8%

lower than the same period of the previous year, due to a

combination of a large amount of vacant space and subdued demand.

The vacancy rate of Chengdu’s Grade A offices fell to 28.4%, 4.8

percentage points lower than a year earlier, as 231,004 sq.m. of new

Grade A office launched during 2014, significantly less than that in

the previous two years.

Outlook

Despite the reduced level of Grade A office supply launching in 2014,

an unprecedented 887,025 sq.m. of new Grade A office space is

expected to launch in 2015, putting substantial upward pressure on

the vacancy rate. Rental levels in the emerging Nanyanxian

submarket are set to decline further as a number of pre-leasing deals

indicate that new office buildings in the area are charging rents that

are much lower than the current market average to secure tenants.

However, we expect rents in the CBD, Dongdajie and South District

to remain relatively stable as new supply levels in these submarkets

gradually declines from the peaks seen in the last two years. Office

buildings developed for the purpose of sale are likely to be put on

the leasing market as investors become increasingly cautious and

vendors’ sales price expectations are not realized. We expect office

occupiers to take advantage of lower rental rates to upgrade their

office accommodation during this supply surge. This high level of

relocation activity might also stimulate additional expansion activity

and absorption as tenants plan for the future and capitalize on low-

cost premises.

CHENGDU OVERALL GRADE A OFFICE


15

CHINA

OFFICE

OUTLOOK

4.00%

4.50%

5.00%

5.50%

6.00%

6.50%

7.00%

7.50%

8.00%

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4


Shenzhen Chengdu

Beijing

Guangzhou

Shanghai

1. ShanghaiGreenland Center 2

US$704,203,077

Buyer: Ping An InsuranceSeller: Greenland Group

2. ShanghaiShanghai Mart

US$579,300,000

Buyer: SIUD JV Nan Fung GroupSeller: Huntington Development

4. ShanghaiSky SOHO

US$496,217,640

Buyer: CtripSeller: Soho China

5. ShanghaiHarbour Ring Plaza

US$704,203,077

Buyer: Oceanwide RE GroupSeller: Hutchison Whampoa

9. ShanghaiJKC Financial Center

US$289,834,725

Buyer: CurafundSeller: China Calxon Group

8. BeijingPacific Century Place

(Office)

US$303,728,646

Buyer: Gaw CapitalSeller: PCPD

3. ShanghaiCorporate Avenue 2

US$515,940,589

Buyer: Brookfield Asset MgmtSeller: Shui On Land Limited

6. ShanghaiThe HUB

US$419,029,721


10. GuangzhouNo. 12, 13 District of Zhongkai

US$268,595,512

7. ShanghaiCorporate Avenue 1

US$327,180,988


Ltd JV Eastlake Corp JV ShingKwan Group JV Universal Global Invest Ltd JV PearlkingDevelopments Ltd JV Smoothly Capital Ltd JV Multi-United Investment Inc

Source: RCA and Cushman & Wakefield Research

Top 10 En-Bloc Investment Deals (by Deal Size), 2014

Estimated Yields for Office Investment,

2013Q1 - 2014Q4


2014 INVESTMENT

In the investment market, the central

government's five-year nationwide ban

(announced in July 2013) on the construction,

expansion, reallocation, and purchase of office

buildings by all government agencies, including

state-owned enterprises, started to have a major

impact. This, coupled with strong outbound

activity from Chinese developers, reduced the

level of investment activity in completed en-bloc

office investments and leveled the playing field

once more for experienced foreign real estate

investors.

The top three largest en-bloc office investment

transactions were all from Shanghai and the

largest transaction was the acquisition of

Greenland Center Phase 2 by Ping An insurance,

totaling approximately RMB 4.4 billion.

Buyer: FantasiaSeller: Shenzhen Hai Gu Zhou Property Development Co Ltd JV TCL Corporation

16

CHINA

OFFICE

OUTLOOK

Cumulative Year-on-Year Growth Rate of Investment in Office Development, 2012 - 2014

Source: NBS and Cushman & Wakefield Research

-100%

-50%

0%

50%

100%

150%

200%

Beijing Shanghai Guangzhou Shenzhen Chengdu

China’s central bank will continue to pursue a prudent monetary policy in 2015, with a focus on targeted

easing measures, to reduce volatility and ensure a soft landing after years of exceptional growth. Despite this,

the real estate sector will continue to face tight liquidity as a result of such policies and this will likely lead to

further consolidations and restructurings.

National policy in 2015 is expected to focus on boosting domestic demand, curbing pollution, and pursuing

the ambitious “One Belt, One Road” strategy of deeper economic integration with trading partners in

Europe and Central and Southeast Asia. China’s authorities will also likely take measures to promote foreign

direct investment (FDI) and outbound direct investment (ODI). Outbound investment flows are climbing

rapidly, highlighting the growing presence of Chinese investors in global markets.

Investment in office building construction recently saw a small uptick in the cities of Beijing and Shanghai,

though in Chengdu, Guangzhou and Shenzhen this was more subdued. Such data suggests that certain cities

could see a sustained period of high supply inventories.

OUTLOOK 2015 & 2016

17

CHINA

OFFICE

OUTLOOK

0 2,000,000 4,000,000 6,000,000 8,000,000 10,000,000 12,000,000

Beijing

Shanghai

Guangzhou

Chengdu

Shenzhen

Existing Stock Future Supply (2015-2017)

**Effective Rent is calculated based on gross floor area and assuming a letting to a multinational tenant occupying

mid floors for a typical three-year lease term with rent-free periods factored in.

Effective Rent and Vacancy Forecast (Grade A), 2013 – 2016


Existing Grade A Inventory vs. New Supply, 2014 – 2017



Shenzhen Chengdu

Effective Rent (RMB/Sq.m./Month) Vacancy Rate (%)

Across the four first-tier markets the massive supply forecast of 1.9 million sq.m. in 2015, 4.1 million sq.m. in

2016, and 4.5 million sq.m. in 2017 bodes well for tenants and puts them back in the driving seat in a number

of locations. Chengdu is no exception either, with a massive 1.38 million sq.m. planned during this same

three-year period.

36.2%*

40.5%*

76.4%*

81.2%*

64.8%*

* Future supply as percentage of existing inventory

Sq.m.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

365

370

375

380

385

2013 2014 2015 2016

0.0%

5.0%

10.0%

15.0%

290

300

310

320

2013 2014 2015 2016

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

153

155

157

159

161

2013 2014 2015 2016

0.0%

10.0%

20.0%

30.0%

185

195

205

215

2013 2014 2015 2016

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

95

97

99

101

103

2013 2014 2015 2016

18

A Cushman & Wakefield Research Publication

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Cushman & Wakefield

Units 2606-2609, The Headquarters Building

168 Xizang Zhong Road

Shanghai, China 200001

www.cushmanwakefield.com

For more information, contact:

James Shepherd

Executive Director

Head of Research – Greater China

[email protected]

Ming Lu

Research Manager

Beijing, China

[email protected]

Chengdu and Guangzhou stand out from the crowd in terms of supply in relation to existing Grade A market

inventory. Starting from a comparatively low base, the three-year supply projection for Chengdu and Guangzhou

suggests that Grade A office inventory will see growth of as much as 81% and 76% in these two cities,

respectively. On the back of what could be relatively modest demand, this may ultimately have a profound impact

on vacancy, which in Chengdu we estimate could reach as high as 40%.

Looking forward, the first major wave of new Grade A office completions is generally scheduled to launch

through 2015 and will take time to impact the respective markets. Cushman & Wakefield therefore project that

these high supply inventories will impact rental levels across major markets most significantly in 2016 and 2017.

It is clear to many tenants with significant footprints and sophisticated occupational strategies that in China’s office

markets an opportunity to restructure leasehold portfolios across the country is either here now or will shortly

arrive. Those wishing to capitalize fully on this Grade A office supply bonanza are preparing strategies for

relocation that are not simply driven by pricing but often have other critical motivating factors, such as: improved

infrastructure, provision of air purification technology, higher-quality building materials and specifications, and

improved building management services. Such factors, coupled with the increasing employment of modern

workplace strategies, will cause a significant change in the quality of work environments for a large number of

office occupiers across China.

From a landlord’s perspective, this is rapidly becoming a winner-takes-all market where high-quality, well-managed

assets vastly outperform much of the lower-quality or aging products in the market. Those property owners that

fail to observe these changes or remain inflexible in negotiations could pay a heavy price over the medium term as

they watch their vacancy rate soar.

Sigrid Zialcita

Managing Director, Research

Asia Pacific

[email protected]

china office outlook - cushman &...

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