The average price of Shenzhen offices has risen another 11% q-o-q in 4Q2015 to around RMB 43,700 per sqm, while average monthly rent for grade-A offices in the city showed a 7% y-o-y growth to RMB 235 per sqm. On average, offices in the city are generating a rental return of 6%. Out of the districts, Futian’s rent level has climbed the most in the quarter while rents at Nanshan remained quite steady, at RMB 160 per sqm per month.
3 office projects, all located in the Nanshan district, were completed in 4Q2015. The new projects have together provided an extra 203,000 sqm of new office supply, over 5% of the total stock supply in the city. During the year, Nanshan has the greatest amount of new supply, while Bao’an has the second highest supply, and with 9 new projects being completed in Nanshan alone last year, Nanshan’s office supply has risen over 70% to a total of 1.26 million sqm. The new supply has pushed the district’s average vacancy rate to 26% in 4Q2015, making Nanshan the district with the highest vacancy rate in the city.
Looking ahead, a very high level of supply is expected in the coming 5 years, with supply peaking in 2016 and 2018. The market is scheduled to receive over 950,000 sqm, mostly in the Futian district, of office space in 2016 alone, while another million sqm, concentrating in Nanshan, is to be completed in 2018. Yet, it seems unlikely that demand will be able to catch up with the huge supply in the future. Most of Shenzhen’s office demand comes from the finance and IT sectors. Despite the 60% increase in prices and the tripling of transaction volume in 2015, with the slowdown of China’s economy, demand from these sectors is expected to drop. Moreover, the continued fluctuations in the stock market are likely to hit the finance sector particularly hard and the weakening market may not be able to absorb the vast supply in the coming year.
The massive supply in 2016 will also put pressure on the rent level, especially on rents in the Futian district where supply is the highest. With the fall in economic growth and hence the tightening of company budgets, many may opt to move out of the more expensive Futian district, putting further pressure on rent in the area. On the other hand, the recent launch of some higher-end office buildings in Nanshan is expected to pull up the district’s average rent slightly in the near future. The high level of supply, 2.5 times of the total absorption volume of the city in 2015, and the gloomy economic outlook is expected to push the city’s overall vacancy level further up in the future.