According to the latest Greater China Property Market Report released by Knight Frank, restrictions in the residential market shifted some purchasing power to the office market. On the leasing front, Grade-A office rents in first-tier cities stayed firm during the fourth quarter of 2013.
Shanghai
Although Grade-A office market saw about 234,000 sqm of new supply in the fourth quarter, vacancy rate dropped only 0.1 percentage point to 4.3% amid strong demand. Overall, Grade-A office rents rose another 0.7% quarter on quarter to RMB278.1 per sqm per month.
Thomas Lam, Director and Head of Research & Consultancy, Greater China at Knight Frank, expects Grade-A office rents in Shanghai to edge down over the next 12 months, particularly in Puxi, due to the amount of new supply. In Pudong, where less supply will come on stream, rents will be stable or see growth, benefitting from the Free Trade Zone.
Beijing
Three Grade-A office projects were launched in Beijing in the fourth quarter, providing 265,000 sqm of space. Abundant supply pushed the vacancy rate up 1.1 percentage points quarter on quarter, to 5.0%, while Grade-A office rents dropped 0.6% to RMB381.5 per sqm per month.
Only slightly over 300,000 sqm of new space is expected to become available in Beijing in 2014. With supply so limited, Thomas expects the vacancy rate to remain at a low 5% and rents will remain firm in 2014.
Guangzhou
During the fourth quarter, two new office buildings in Pearl River New City were completed, providing 130,000 sqm of space. The vacancy rate rose 1 percentage point to reach 21%, while rents dropped 0.6% to RMB176.1 per sqm per month.
Thomas expects that the office leasing market in Guangzhou will remain under pressure, while the vacancy rate will rise further in 2014, dragging down rents. With the launch of a number of new Grade-A offices in the sales market this year, prices will remain high, dragging yields down further.