Trends indicate recovery in Grade A Office market of Greater Bay Area

The rental demand kept increasing, the decline of the rental index narrowed 4 percent, the price index increased 0.2 percent half-on-half (HoH)…These trends indicate a recovery in the Grade A office market of the Guangdong-Hong Kong-Macao Greater Bay Area (GBA) in the first half of 2021, according to a report released by Savills, an international real estate adviser.

The report encompasses statistics of nine Guangdong cities and Hong Kong while Macao is temporally excluded due to the lack of data.

In the first half of 2021, Hong Kong saw limited demand in the office market and its rental index dropped 3.1 percent HoH to 147.2 because of the Covid-19 pandemic and the travel restrictions. Although Shenzhen’s office rent kept declining because of oversupply, the drop of its rent index almost hit bottom with a 0.9 percent fall to 138.5. In terms of Guangzhou, its rent index declined 1.6 percent to 144.6 with a large amount of new supply into the market in 1H.

Dongguan, Zhuhai and Huizhou dropped slightly while Jiangmen is the only city that saw its rent increase in 1H among the 10 cities.

The supply of new office space reached 1.449 million square meters in the Greater Bay Area in 1H, pushing the total supply to 30.392 million square meters. These office projects are mainly located in Guangzhou, Shenzhen and Hong Kong. Shenzhen has the largest amount of office supply in the Area.

The rental demand bounced back as the pandemic was mostly controlled in the GBA. The net absorption increased to 972 thousand square meters which is respectively 3.7 times and 2.4 times than the first half of 2020 and the second half of 2020.

The report anticipates that the decline in the office market of 9 GBA cities will halt soon in the future while Jiangmen will continue to grow due to the recovery of lthe ocal economy, increased rental demand and improved quality of new office projects.

Guangzhou saw three new office projects enter into the market in 1H, pushing up the total Grade A office supply to 5.765 million square meters.

The rental demand keep growing and is mainly from the finance, TMT, retail and trading enterprises. Although the city saw a wave of Covid in May, its rental market remained active with the net absorption hit 153 thousand and 111 thousand square meters respectively in Q1 and Q2. Both numbers are higher than the quarter average over the past five years. As a result, the vacancy rate dropped 0.8 percent QonQ to 8.2 percent in Q2.

According to Savills, more new office supply is expected to enter the market in the second half of 2021 and drive up the vacancy rate citywide. In addition, the Guangzhou government released policies in June to support businesses that were affected by the pandemic through increasing financial support, reducing tax and office rent. It’s anticipated that office rent will continue to decline in 2H although the demand keeps increasing.

 

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