Savills World Research Shenzhen Briefing Office sector May 2016 Image: Excellence City Phase Two, Futian district SUMMARY The Nanshan district, especially the Houhai area sales and leasing market, has benefitted greatly from the spill over of tenants from Qianhai, as most new projects in the area remain under construction. Three new projects, Excellence per month, up 3.9% year-on-year City phase two and China Mobile (YoY). building, both located in Futian, “An influx of office buildings in and the Alibaba centre located in Strata-title transaction prices the Houhai headquarter base Nanshan, added 175,100 sq m to the increased 1.1% QoQ to RMB53,809 market. per sq m, up 10.7% YoY. is expected in the first half of Net take-up reached 181,088 Strata-title rents increased less 2016. As such, in Futian and sq m in the first quarter, decreasing than prices, decreasing average 28.3% quarter-on-quarter (QoQ). gross yields by 11 basis points (bps) Houhai, downward pressure QoQ to 4.93%. is expected on rents and the In response to an influx of new supply last quarter, city-wide vacancy Three new projects are expected occupancy rate will rise in the rates fell by 0.4 of a percentage point to be handed over in Q2/2016, (ppt) to 8.2%. adding around 367,670 sq m to the short term.” Sam He, Savills Research market and increasing stock to 5.7 Rents decreased 0.8% QoQ to million sq m. an average of RMB226.7 per sq m savills.com.cn/research 01 Briefing |Shenzhen office sector May 2016 Market summary GRAPH 1 Three projects, two of which were Grade A office supply, take-up and vacancy rates, located in the Futian district, were 1999–Q1/2016 handed over in Q1/2016, adding Newsupply(LHS) Take-up(LHS) Vacancyrate(RHS) 175,100 sq m to the market. The 1,000 60% current sales market remains quite 900 54% active, with high demand raising 800 48% prices in the three central districts. 700 42% The leasing market witnessed a slight decrease in rents and vacancy 600 36% rates. 500 30% '000 sq m 400 24% In Q1/2016, vacancy rates in all 300 18% central districts except Baoan decreased, lowering the city-wide 200 12% vacancy rate by 0.4 of a ppt. City- 100 6% wide take up continued to exceed 0 0% supply, driven by strong demand. 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152016Q1 Source: Savills Research The office market in the Houhai GRAPH 2 district will benefit in the short term from the spill over of tenants Grade A office rental indices, Q1/2001–Q1/2016 from nearby Qianhai. However, it All Futian Luohu Nanshan Baoan will remain to be seen if these new 280 areas will be able to retain tenants, 260 as a number of office buildings are 240 expected to enter the market in 220 Qianhai in the next few years. 200 City-wide rents decreased 0.8% in 180 the third quarter to an average of 160 Q1/2001 = 100 RMB226.7 per sq m per month, up 140 3.9% YoY. 120 100 City-wide rents, except those in 80 Futian, experienced downward Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 pressure in Q1/2016. Rents in Luohu 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152016 decreased 2.5% to an average of Source: Savills Research GRAPH 3 RMB 207.1 per sq m and by 2.1% in Average Grade A strata-title sales Grade A strata-title office price Nanshan to an average of RMB210.7 prices across all districts increased, indices, Q1/2001–Q1/2016 per sq m. Rents in Futian did not with the city-wide average rising All Futian Luohu Nanshan Baoan decrease and remained the highest 1.1% QoQ to RMB53,809 per sq 400 among all other districts. With fewer m, up 10.7%YoY. Luohu saw the 350 new buildings on offer, Luohu, the greatest average price increase 300 traditional CBD, saw many tenants of 2.2% to RMB265.2 per sq m, move out; Nanshan, an emerging driven by strong demand for a 250 CBD with new office projects, limited number of office projects in 200 suffered from a lack of supporting a relatively affordable and mature 150 Q1/2001 = 100 facilities and infrastructure. business area. The Futian district 100 Additionally, landlords in Nanshan remained the most expensive district 50 have been forced to reduce rents for strata-title sales, with an average in order to compete with a surge of price of RMB361.9 per sq m. 0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 new supply in the Houhai district, 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20152016 decreasing rents across the board. Source: Savills Research 02 Briefing |Shenzhen office sector May 2016 Gross strata-title yields decreased 11 bps QoQ to 4.93%. The Luohu district’s average yield is 5.6%, down Project Information 0.4 of a ppt QoQ, but still ranked highest of all districts. Excellence City phase two Market outlook Excellence City phase two, Rents and sales prices will continue Project Excellence City phase two located in the Futian district, to experience downward pressure as city-wide office stocks are expected was developed by Excellent to reach record highs in the second Group. The project was half of 2016, with the addition of launched in the first quarter nearly 1,130,243 sq m of space. Fifty in 2016, adding nearly 95,100 per cent of this new supply will be sq m to the market. The handed over in the Nanshan area, project is sales-only, with an Location Futian district where rents decreased in Q1/2016 following the launch of three new asking price of RMB58,000 Owner Excellent Group projects with a total GFA of 175,100 per sq m. The office space Handover date Q1/2016 sq m. Strong demand for office is located on floors six to GFA 95,100 sq m space, stimulated by the growth 28 (nominal), with a typical of Shenzhen’s IT sector, which No. of storeys 6-28F floor plate of 2,200 sq m. The has already endorsed the Houhai Typical floor plate 2,200 sq m property management fee is district as a developing industry hub, Ceiling height 4.1 m is expected to drive take-up and expected to be RMB18 per absorption rates. However, rents sq m per month. Starting asking price RMB58,000 per sq m and transaction prices are expected Management fee RMB18 per sq m per month to decrease further due to the new supply influx, which is expected to Source: Savills China Research be almost five times greater than that of the previous year. Please contact us for further information Research Agency Project & Development Consultancy James Macdonald Sam He Sunny Poon Sherry Xu Director, China Senior Manager Director Director +8621 6391 6688 +8620 3892 7350 +86755 8828 5345 +86755 8828 6922 [email protected] [email protected] [email protected] [email protected] Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 700 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. 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