Cushman & Wakefield today released its annual Greater China Top Office Supply/Demand Trends report. According to the report, by the end of Q4 2023, the total Grade A office inventory in the core markets of the 21 major cities in Greater China the firm tracks totaled 68.2 million sq m. In the meantime, total premium core city office net absorption across the Greater China market for the whole year was 1.6 million sq m, an increase compared to the figure registered in 2022.
Among the six major cities in the region, Taipei registered the lowest vacancy rate, at 8.3%. As for the tier-2 city group, Suzhou recorded the lowest vacancy rate at 16.5% among our tracked city markets in Greater China.
Shaun Brodie, Head of Research Content, Greater China, Cushman & Wakefield, said, “2023 was the first full ‘normal operating’ year after the pandemic. However, during the year, the Grade A office market in Greater China faced a number of new challenges. Given the slow pace of economic recovery, office leasing demand was relatively weak throughout 2023 and did not see a rapid rebound."
Jonathan Wei, President, Head of Project and Occupier Services, China, Cushman & Wakefield, said, “In the next two years, there will be a peak in supply in most of the major cities in the Chinese mainland region. This supply volume will inevitably lead to an increase in office project space availability pressure and a steady downward adjustment in rents. Landlords will need to continue to strengthen their market competitiveness to attract tenants.”
Beijing
In 2023, Beijing's Grade A office new supply increased by 43.2% y-o-y to 606,794 sq m. New supply in the five core submarkets and the suburban submarkets accounted for 30.2% and 69.8% of the total, respectively.
In 2023, citywide annual net absorption recorded 147,985 sq m, down by 14.5% year-on-year (y-o-y). New supply combined with weak demand drove the city’s vacancy rate up by 2.7 percentage points y-o-y to 18.7%. The citywide average rental level retreated 7.3% y-o-y to RMB297.9 per sq m per month. The TMT, finance, and professional services sectors continued to dominate leasing demand, with lease renewals becoming the primary option for tenants upon lease expiry.
Ahead, approximately 1.08 million sq m of new supply is now expected to enter the market by the end of 2026, of which 40% will be launched in 2024. The large volume of new supply this year will drive up the city's vacancy rate and the average rental level is expected to be adjusted downward. In 2024, Beijing's development will focus on the digital economy and the expansion and opening up of the service sector. Accordingly, companies in the digital economy, the telecoms sector, the healthcare services sector and the financial services sector are set to be the main sources for office leasing demand in the city.
Shanghai
In 2023, the Shanghai Grade A office market added nearly 1.6 million sq m of space, pushing the stock total to exceed 16 million sq m by Q4.
Last year, the total net absorption of Grade A office space in Shanghai was 388,370 sq m. Among the new-deal occupiers, financial, professional services, and TMT tenants accounted for 19.8%, 16.1% and 16.0% of the total leasing transaction volume by area, respectively. By the end of Q4, the vacancy rate in Shanghai was 21.8% while the rental level was RMB239.5 per sq m per month.
The next few years will still continue to see new supply complete. In 2024 alone, more than 1 million sq m of space is expected to enter the market, of which more than 60% of the GFA will be distributed in the suburban areas.
In terms of demand, the expected large number of new high-quality projects will provide more choice for tenants but at the same time increase market competition among landlords. Against the background of oversupply, the office market in Shanghai in 2024 is expected to continue to be tenant-favorable. As for industry sectors, we expect demand for quality leased office space in the city in 2024 to continue to be driven by the finance, professional services and TMT industries.
Shenzhen
Full-year new Grade A office supply of 845,530 sq m pushed the city’s stock past the 8 million sq m mark. New completions in 2023 were mainly located in the city’s western submarkets, with Nanshan, Qianhai and Bao’an Centre making up a 74.8% combined share of total new supply.
Most companies remained cautious when considering expansion given the economic recovery positioning and weakening leasing demand. Having said this, supported by space upgrading and relocation demand, net absorption for the city in 2023 reached 392,600 sq m, surpassing the average total for the past 10 years. Meanwhile, the supply influx buoyed up the city-wide vacancy rate to 26.1% and pushed the average monthly rental for Shenzhen down to RMB186.5 per sq m.
More than 1.4 million sq m of office space is projected to enter the Shenzhen market in 2024. Ahead, accumulating economic positives may provide a lift to the office market. Nonetheless, extra supply and softer-than-usual demand is expected to increase the vacancy rate and place downward pressure on rents.
Guangzhou
In 2023, new supply in Guangzhou's Grade A office market continued the active project completion trend seen during the past two years, with six new projects entering the market throughout the year. These new completions brought a total of 461,000 sq m of new supply to the city, an increase of 10.5% y-o-y. On the submarket level, Pazhou was the area with the largest amount of new supply last year, accounting for 57.4% of total supply.
In 2023, Guangzhou recorded a net absorption total of 90,510 sq m, a significant increase y-o-y. Domestic enterprises remained the mainstay for demand. Among them, professional services, retail & trade, and finance reached the top three in terms of the proportion of leased area take up for the year. Meanwhile, the city's year-end vacancy rate reached 18.7%, up 4.7 percentage points y-o-y.
By 2027, the city's Grade A office market will welcome 3.33 million sq m of new supply, mainly in Financial Town and Pazhou. The continued volume of completed supply is expected to pull the net absorption back up but will also shape the city's vacancy rate to remain high for some time to come. Rents in the city, accordingly, are expected to remain under pressure with tenants continuing to remain in a strong leasing contract bargaining position into the rest of 2024.
Hong Kong
In 2023, the total supply amounted to 114,900 sq m, down 57% y-o-y from the 266,500 sq m total recorded in 2022. All supply in 2023 was concentrated in suburban locations, with two projects located in Kowloon East and one in Kowloon West. We expect the upcoming supply to increase to 161,800 sq m in 2024.
Amid prevailing global economic uncertainty, business sentiment in Hong Kong remains cautious. The majority of office occupiers continue to prioritise cost-saving strategies. In 2023 full-year net absorption recorded -24,000 sq m, resulting in an availability rate that reached 18.8%* by the end of 2023.
Hong Kong’s office sector is expected to encounter headwinds in 2024, with the high availability of office space exerting downward pressure on rents over the next 12 months. Grade A office rents are projected to further correct by -7% to -9% in 2024. On a brighter note, the introduction of new office supply offers occupiers additional options for flight-to-quality choices. This is particularly relevant for corporations seeking office premises that align with their Environmental, Social, and Governance (ESG) requirements within their tenancy agreements.
(*In addition to the new supply completion, the existing office building HSBC Centre Tower 1 was added to the building basket in Q4)
Taipei
In 2023, Taipei saw only one new Grade A office building complete – Fubon A25. This project added approximately 96,200 sq m of supply to the market – triple the figure seen in 2022. By the fourth quarter, the city's rental level was NT$819.8 per sq m per month, with the vacancy rate touching 6.1%.
In 2023, Taipei's net absorption was about 32,900 sq m. Demand mainly derived from financial and insurance sector company headquarters integration. Excluding their impact, net absorption was negative. Meanwhile, multinational corporation demand dropped from 81.4% in 2022 to 51.6% in 2023, mainly due to the uncertain international situation.
From 2024 to 2026, Taipei's Grade A office market will add about 640,000 sq m of space. Labor and material shortages have delayed new construction, but as stability returns, tenants will have more options, therefore reducing landlords’ advantages. In the meantime, the pandemic spurred new economic models and digital shifts. Office workers today are now seeking a better work-life balance. Understanding this, companies in Taipei must prioritize people-centric approaches and create friendly office environments to meet this need.
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Cushman & Wakefield is a leading global commercial real estate services firm for property owners and occupiers with approximately 52,000 employees in nearly 400 offices and 60 countries. In Greater China, a network of 23 offices serves local markets across the region. In 2023, the firm reported revenue of $9.5 billion across its core services of valuation, consulting, project & development services, capital markets, project & occupier services, industrial & logistics, retail and others. It also receives numerous industry and business accolades for its award-winning culture and commitment to Diversity, Equity and Inclusion (DEI), sustainability and more. For additional information, visit www.cushmanwakefield.com.
