China’s grade A office market under pressure from pandemic
March 31, 2020 Category China News Round-up, Weekly
China’s Grade A office market will come under further pressure from falling rents and rising vacancies, at least in the near term, due to the Covid-19 pandemic. “As the Grade A office market in major cities in China was already under downward pressure before the novel coronavirus outbreak, which has been hit mainly by subdued demand and ample new supply, rentals are expected to drop further for the duration of the outbreak and it would therefore take longer for the market to stabilize than previously anticipated,” said Daniel Yao, head of research for JLL China. “Project delays due to the virus outbreak might help alleviate pressure in some sub-markets but overall softening demand would continue to weigh on the market in the near term.”
A report by global property consultancy Cushman & Wakefield showed gross effective rental growth for Grade A offices in Beijing, which is expected to see 2.3 million square meters of new supply arrive in the two years through 2021, will fall 5.9% this year and rebound to a growth of 2.8% in 2021. In Shanghai, about 5.9 million square meters of new Grade A offices is forecast to be added to the market by 2023. “The Covid-19 outbreak has been an unprecedented event and its impact will be felt in Shanghai’s office market into the near-term future,” said Shaun Brodie, Senior Director of Research at Cushman & Wakefield China. “Subsequent amplified vacancies are expected to place further strain on citywide rental.” In Beijing and Shanghai, the vacancy rates might climb to 18.4% and 22.9%, respectively, this year, up from 13.5% and 19.6% in 2019, Cushman & Wakefield data shows.
Bucking an overall bleak scenario, there are still tenants and industries that are proving resilient to, or even thriving amid, near-term challenges. Notably, companies offering necessary services during times of crisis, including health care and insurance as well as online entertainment, will drive some office leasing demand in the immediate term. Such demand will probably continue expanding once the novel coronavirus pandemic is contained and supportive government policies lay the groundwork for economic recovery, according to JLL research. The top three industries expected to drive office leasing demand into the rest of the year in Shanghai are health care, professional services and the technology, media, and telecom sectors, according to Cushman & Wakefield, as reported by Shanghai Daily.
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