An Average 6% Yield In Guangzhou's Prime Commercial Properties

An Average 6% Yield In GuangzhouOther than Guangzhou housing stabilising in “Silver October”, let’s also have a look at prime commercial properties - office and retail segment in particular. In general, both of them could offer an average city-wide yield of around 6% in the near future.

On office front, new office spaces of over four million square metres are likely be seen by the end of 2014, up by 16.6% y-o-y, with all of them locating in Zhujiang New Town. Given the surge in new supply, vacancy rates are likely to be over 15% by the end of the year. However, the average market rent is likely to remain stable at around RMB150 per square metre per month in the short to medium term.

Large private companies are expected to become the main demand driver in the office market, upon cost concerns from most tenants. In fact, business expansions continue to be encouraged, due to the banks’ selective interest rate cuts and a series of policy stimuli which have strengthened market confidence, leading to a gain in net take-up of Grade A office space in the future. As of the last second quarter end, prime office in Guangzhou reported a high vacancy rate of 17% and close to 6% yield.

On retail front, new retail spaces of over 4.5 million square metres are likely to be seen by the end of 2014, up by 16% y-o-y, with all of these new projects located in emerging areas such as Panyu, Zhujiang New Town and Zengcheng. Preleasing in several new projects is expected to be seen in 2015 and 2016, leading to competition among developers for potential tenants. Due to this phenomenon, rents in emerging areas are likely to stay weak. In contrast, rent in prime areas (i.e. Tianhe Bei and Yuexiu) are expected to remain stable at around RMB1,000 per square metre per month on higher retailers’ preference, against rents in emerging areas (such as Zhujiang New Town and Panyu) of less than RMB500 per square metre per month. As of the last quarter end, prime retail spaces in Guangzhou reported a 4.2% vacancy rate and 5.7% yield.