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Shenzhen Office Market Report Q1 2020 Shenzhen Office Market Report Q1 2020

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Shenzhen Office Market Report Q1 2020 Shenzhen Office Market Report Q1 2020 Impacted by COVID-19, the decline of the vacancy rate in the Shenzhen Grade-A office market slowed down as compared to the previous quarter Shenzhen Office Market Report knightfrank.com.cn Q1 2020 SHENZHEN OFFICE MARKET REPORT Q1 2020 SHENZHEN OFFICE MARKET REPORT Q1 2020 THE ABUNABCE OF NEW SUPPLY Shenzhen Grade-A office market indicators AND COVID-19 EXERTED DOWNWARD PRESSURE ON THE RENT OF SHENZHEN GRADE-A OFFICE NEW SUPPLY RENT VACANY RATE PrICE M A R K E T Q1 2020 42,690 sqm RMB 212 / sqm / month 19.5% RMB 53,976 / sqm QOQ CHANGE 61.1% 3.2% 0.8 percentage points 0.6% FORCAST (Q2 2020) Source: Knight Frank Research In Q1, the new supply in the Shenzhen Grade-A office market was 42,690 sqm and pushed up the stock to 7.41 million sqm. Affected by the COVID-19 pandemic, the decline of the vacancy rate of the Shenzhen Grade-A office market slowed down. Q1 2020, Metro Technology Building was February 7, 2020, the Shenzhen government expand their offices. delivered to the market and brought 42,690 released 16 measures, including deferring RENTS AND PRICES sqm of space to the Shenzhen Grade-A tax payment or deducting tax, financial It is expected that the surge in new supply In Q1, the average rent for Grade-A office office market. Although the vacancy rate subsidies, deducting the rent for enterprises of the Shenzhen Grade-A office market in space in Shenzhen was RMB 212 per sqm of the Shenzhen Grade-A office market and reducing financing costs, etc., so as to 2020 will exert more downward pressure Fig 1. Shenzhen Grade-A office rental and price per month, down 3.2% QoQ. Affected declined slightly by 0.8 percentage points to support enterprises. on the rent. However, that could be good Price Rental by the epidemic, various business 19.5% QoQ, due to the impact of COVID-19, In the aspect of rent reduction and news for many tenants who are facing cash and production activities have not RMB/sqm/month RMB/sqm the decline of the vacancy rate slowed down exemption for enterprises, the Shenzhen flow pressure. Meanwhile, the vacancy fully recovered to the level before the 260 60,000 as compared to the previous quarter. government waives the rent for two months rate in the Shenzhen Grade-A office market outbreak in the short term, resulting in for non-state-owned enterprises, scientific remained relatively high, which also means 240 55,000 the weak demand for office buildings. In Q1, the average rents in the Shenzhen research institutions, medical institutions that tenants will have more options when 220 50,000 In addition, the new supply to the Grade-A office market fell 3.2% QoQ to and individual industrial and commercial relocating their offices. market during the year also forced office 200 45,000 RMB 212 per sqm per month. The COVID-19 households that rent properties owned owners to lower rents to attract more outbreak in 2020 further weakened the by the municipal government, district 180 40,000 tenants. Therefore, it is expected that demand side of the Shenzhen office market, government, municipal or district state- 160 35,000 the downward trend of the Shenzhen which has already been out of balance owned enterprises. Grade-A office market’s rent will 140 30,000 between supply and demand. Many continue for some time. companies have put their expansion plans Although the COVID-19 outbreak has 120 25,000 on hold or cancelled them due to economic negatively affected many industries, it Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 In Q1, in terms of the business district, 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 uncertainty and financial pressures. In has also accelerated the development of the average rent in the core business Source: Knight Frank Research order to alleviate the impact of the outbreak some industries, such as e-commerce and district dropped the most, down by 3.8% on enterprises, Shenzhen government healthcare. It is expected that relevant QoQ to RMB 225 per sqm per month, has launched relevant policies to support enterprises that are benefiting from the while the average rent in the secondary enterprises to tide over the difficulties. On epidemic will have plans to upgrade and 2 3 SHENZHEN OFFICE MARKET REPORT Q1 2020 SHENZHEN OFFICE MARKET REPORT Q1 2020 business district dropped the least, a resulting in a QoQ drop of 13.3% to RMB For the strata-title market, the average decline of 2.2% QoQ to RMB 193 per 208 per sqm per month. Rent subsidies selling price of the office buildings in SUPPLY AND DEMAND sqm per month. introduced by the Qianhai authority last Shenzhen during Q1 was RMB 53,976 In Q1, there was one new Grade-A year have encouraged a large number of per sqm, slightly up 0.6% QoQ. But due office project completed and delivered In terms of sub-market, the owners companies to return to the Qianhai sub- to the epidemic, the strata-title market Fig 2. Shenzhen Grade-A office supply, take-up and vacancy rate in Shenzhen, bringing 42,690 sqm of the Grade-A office buildings in market. The increased leasing demand in Q1 was stagnant, selling price fell Grade-A office supply (left) Grade-A office net absorption (left) Vacancy rate (right) new supply to the market. Therefore, Caiwuwei sub-market offered more of Qianhai sub-market led to a slight by 6.3 percentage points QoQ and no '000 sqm the stock of Grade-A office market in favorable rents in order to attract more increase in rent by 0.7% QoQ to RMB 154 transaction of office buildings were 1,600 30% Shenzhen drove up to 7.41 million sqm tenants to settle in their properties, per sqm in this quarter. recorded in the market in Q1. and net absorption was 93,000 sqm. 1,400 25% 1,200 Despite the oversupply situation 20% 1,000 Table 1. Shenzhen Major Grade-A office sub-market indicators, Q1 2020 in the Shenzhen office market, and the epidemic has brought a certain 800 15% Rent (RMB / Rent Change Vacancy Vacancy Rate Submarket negative impact on its leasing market, 600 sqm / month) QoQ Rate Change QoQ 10% lease transactions with large area 400 were still recorded in Q1. The major Caiwuwei 208 ↓13.3% 15.0% ↑1.6 5% tenants were from the energy and TMT 200 Futian CBD 247 ↓1.2% 13.5% ↓0.9 industries. Typical transaction cases 0 0% include: Datang Smart Energy rented 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Q1 Houhai 224 ↓3.9% 12.7% ↓2.3 a 4,000 sqm of office space in Building Source: Knight Frank Research Qianhai 154 ↑0.7% 32.2% ↓2.4 T5, China Resources Qianhai Building; Meituan rented a 3,000 sqm of office Huaqiang North 188 ↓2.6% 32.5% ↔ space in Xinian Center. percentage points from the previous relatively well in this quarter. The Chegongmiao 221 ↓4.3% 26.5% ↓2.6 quarter to 19.5%. In this quarter, three vacancy rate declined by more than 2 In Q1, the vacancy rate in the Shenzhen office sub-markets in Houhai, Qianhai percentage points QoQ. Shekou 200 ↔ 42.2% ↑0.4 Grade-A office market declined by 0.8 and Chegongmiao all performed Nanyou 170 ↓2.9% 4.4% ↔ High-tech Business Park 183 ↓1.1% 23.1% ↑0.1 Source: Knight Frank Research Table 2. Shezhen Major Grade-A office leasing transactions, Q1 2020 INVESTMENT MARKET Area District Building Tenant In Q1 2020, no en-bloc transactions were quantitative easing. The policies from (sq m) recorded the investment market of the the Federal Reserve are expected to Building T5, China Resources Grade-A office market in Shenzhen, and accelerate the liquidity and flexibility of Qianhai Datang Smart Energy 4,000 Qianhai Building the market was quiet. the capital of foreign investors. Affected by the epidemic, the activities According to RCA, in the past decade, 39.7% Chegongmiao Xinian Center Meituan 3,000 of en-bloc transaction market in many the average proportion of foreign office transactions COFCO Core R&D Center ANA 700 parts of China has slowed down, but buyers’ investment amount in Shenzhen Baoan in 2019 Source: Knight Frank Research international institutional investors real estate market accounted for 33% Note: all transactions are subject to confirmation are still actively seeking investment of the total investment value and the opportunities in office buildings, amount increased to about 69.4% in especially those in Singapore, and 2019. In the whole year of 2019, office their focus on the Chinese real estate transactions accounted for 39.7% of Foreign buyers investment market have increased. the total real estate transactions in accounted for However, due to the epidemic, the Shenzhen. investment decision-making process Therefore, at the backdrop of the of overseas investors was forced to be interest rate cut by the Federal Reserve, 69.4% of total delayed. it is expected that the office projects Investment Nevertheless, on March 15, 2020, located in the core area of Shenzhen in 2019 the Federal Reserve announced an will enjoy huge potential for rising emergency rate cut to zero and launched capital value and attract more overseas a massive US$700 billion program of capital to invest in high-quality office 4 5 SHENZHEN OFFICE MARKET REPORT Q1 2020 properties in Shenzhen.
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