Strong absorption lightens the load on 2022 supply
Source: Cushman & Wakefield Research
Shaun Brodie, Head of Occupier Research, Greater China, Cushman & Wakefield said, “The volume of quality office supply in many cities in Greater China is expected to enter a peak period this year. Between 2022–2025, much of the future supply expected to complete will land in suburban locations, which will continue to drive decentralization as a number of tenants seek quality space at a discounted rental.”
Jonathan Wei, Managing Director, Head of Project and Occupier Services, China, Cushman & Wakefield, said, “Looking to the year ahead, considering the economy, policy direction and COVID-19 control, we believe overall prime office demand will continue to be resilient in Greater China.”
In particular, certain industry sectors have seen new business opportunities or have the potential to realize business growth, given recent governmental policy directives and recent commercial, societal and lifestyle changes. These industry sectors are:
* The financial sector
* The technology, media, and telecommunications (TMT) sector
* The healthcare sector
Looking at the individual major gateway cities in Greater China, Grade A office market demand performance in 2021 generally turned out to be better than expected. Into 2022, we expect a number of factors, including the state of the general economy, government policy and individual city initiatives, to help drive continued demand:
In 2021, due to the significant reduction in the large volume of new supply compared with 2020, Beijing's Grade A office new supply dropped 25.4% y-o-y to 624,065 sq m.
The full-year net absorption was at 839,458 sq m, the strongest annual figure since 2017.
The released Beijing’s Implementation Plan on Accelerating the Construction of a Benchmark City for the Global Digital Economy in August 2021 highlights the health services industry as one of the six major industries for Beijing's future development. Meanwhile, in September, the government set up China’s third stock exchange in the city, aiming specifically to serve small- and medium-sized businesses. In the future, under the government policy and development goals, the biopharmaceutical industry and SMEs will usher in a better platform and a broader development space, further enhancing demand for quality office space in the city.
2021 has been another big year for Shanghai’s emerging business areas, with 678,311 sq m of new supply being added, accounting for 92.1% of new supply in the city. Subsequently, overall citywide Grade A office stock expanded to 14.4 million sq m.
As the year progressed, and as the city got used to the epidemic prevention ‘new normal’, so office demand rebounded from a taxing 2020. In every quarter in 2021 net absorption exceeded new supply, pushing the annual net absorption up to 1.4 million sq m, an over 200% y-o-y increase.
Without doubt, the aftermath of the pandemic has and will continue to transform the general economic structure. As this transformation takes place, so new business opportunities will appear and as they do, so demand for Grade A office space will continue to be driven in major cities like Shanghai. Some industries which are expected to see transformative new business opportunities are fintech, TMT, healthcare, asset management, new retail, and modern logistics.
In 2021, the new supply of Grade A office buildings in Shenzhen was about 359,800 sq m. All were located in the core areas — Futian accounted for 44.5% of the total, while Nanshan accounted for 55.5% of the total.
Given the relatively limited supply in the market, net absorption of Grade A office buildings in Shenzhen was recorded as high as 673,000 sq m for the whole year; the highest figure recorded since 2018.
From 2022 to 2026, the future supply of Grade A office buildings in the city will exceed 6 million sq m. 90.2% of the future supply is scheduled to be completed in the core submarkets, specifically in Nanshan District, while suburban areas will account for 9.8%, signifying a notable westward business expansion in Shenzhen. On the other hand, a significant number of self-use headquarters properties in Qianhai and in the Shenzhen Bay Super Headquarters Base will alleviate the take-up pressure to a certain extent.
In 2021, Guangzhou's Grade A office market welcomed 430,744 sq m of new supply, increasing by 83% y-o-y. Subsequently, the city's total stock reached 5.6 million sq m.
In the environment where the COVID-19 epidemic has gradually been effectively controlled, office demand has bounced back. Although there were small outbreaks in some parts of Guangzhou in the middle of the year, the continuous improvement in epidemic prevention minimized its negative impact on economic activities, with office market leasing activity significantly improving. Net absorption in the city consequently recorded 425,969 sq m, more than four times that seen in 2020 and reaching a record high since 2017.
In 2022, Guangzhou's Grade A office market will involve a new round of new supply, which is expected to put pressure on both the market vacancy rate and rental in the short term. The new supply, however, is expected to bring more choice to enterprises, which will provoke office demand and drive absorption.
In 2021, the Hong Kong’s new Grade A office supply consisted of just one new project: Marina 8 in Hong Kong South, which entered the market in Q1. This project added 7,100 sq m to the Grade A office market. Compared to the circa 26,000 sq m in 2020, this represents a 73% yearly decrease in new supply.
For the whole year, overall net absorption for 2021 recorded -53,800 sq m, attributed to a downward trajectory in the first half of 2021. Subsequently, the city’s overall availability rate rose slightly to 13.6% by year-end, compared to 12.6% in 2020.
With 2021 showing initial signs of recovery and stabilization, Hong Kong’s Grade A office market in 2022 will hinge on how quickly the prevailing Omicron outbreak in the city can be contained and how the crisis in Ukraine will be resolved. While banking and finance companies were an important anchor to support leasing activity in 2021, the emerging new economy companies, such as fintech, digital assets and flexible workspace, will likely continue to thrive in 2022 and support the city’s office leasing market. This trend will likely help drive the majority of the key leasing deals, particularly within the core CBD and the wider Greater Central area, where some premium trophy office buildings are currently sitting at discounted rents.
In 2021, only two quality Grade A office building were launched. The new supply, the 53,600 sq m China Life Insurance Building at Dunbei Minsheng and the 15,200 sq m Hope Square project at Nanjing Songjiang, added 68,800 sq m to the Taipei Grade A office market.
In 2021, the leasing market remained solid with the full-year absorption for 2021 reaching 57,800 sq m. Leasing transactions were predominantly small- and medium-sized areas, averaging 1,900 sq m per deal. Expansion and downsizing by firms in response to the effects of the pandemic were offset by different industries, resulting in stabilized office demand.
Given the scarcity of leasable area in the core area, Nangang District, as an emerging office district with high-quality office space and competitive rents, has and will continue to attract the attention of tenants. In the core area, the supply and demand factors are likely to reach a counterbalance point, with rental growth subsequently expected to slow further.
Click here to download the Greater China Top Office Supply / Demand Trends report.
About Cushman & Wakefield
Cushman & Wakefield (NYSE: CWK) is a leading global real estate services firm that delivers exceptional value for real estate occupiers and owners. Cushman & Wakefield is among the largest real estate services firms in the world, with approximately 50,000 employees in over 400 offices and 60 countries. In Greater China, a network of 22 offices serves local markets across the region, earning recognition and winning multiple awards for industry-leading performance. In 2021, the firm had revenue of $9.4 billion across core services including valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.