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BEIJING
XI’AN
QINGDAO
DALIAN
TIANJIN
SHENYANG
SHANGHAI
NANJING
WUHAN
CHONGQING
CHANGSHA
HANGZHOU
XIAMEN
GUANGZHOU
SHENZHEN
CHENGDU
14
dTZ | In Situ
This supply wave will hit each one of the fourteen office markets
in china, and figures 1 and 2 highlight what its effect is going to
be, expressed both as a percentage of current grade A office
stock and the actual increase in leasable office space (shown
in square metres). The impact of new supply will be different in
each market and this will define whether tenants will have the
upper hand in commercial negotiations, or if landlords will gain
more power.
This wave of new office space will transform china’s office
market. many properties that are only 10 years old are now
functionally obsolete for today’s office user, requiring either
significant repositioning or conversion to alternative use, or
tearing down altogether. however, much of this new grade A
office supply will be of a quality equal or better to that which
can be found in many mature markets. This will be good news
for companies seeking to upgrade their office environments
(‘flight to quality’), exploring new workplace design concepts that
will enable them to use space more efficiently, and particularly
for those whose business continues to blossom in china. This
includes professional services, information technology and
medical and financial services companies, who are experiencing
an accompanying (and sometimes explosive) headcount growth
and are struggling to ‘right size’ their footprint while enhancing
space efficiencies to control costs. And, with short leases of,
typically, three years being the norm in the market, these
occupiers will be spoilt for choice.
Take nanjing, at the ‘oversupply extreme’, for example. currently
at 1,202,187 sq m of grade A office stock, it is set to increase
this by a massive 245% (2,968,988 sq m) by the end of 2015.
This will undoubtedly put pressure on the city’s availability ratio
(currently registering at 9.29%, which is already a little on the
high side) and could lead to a softening in rentals, particularly
if demand does not keep pace. In the short to medium-
term occupiers in this market should have the edge in lease
negotiations, will be able to seek aggressive heads of terms and
improved flexibilities on new leases, and even negotiate with new
landlords to contribute to their office fit-out costs to facilitate
their move and relief on their cash flows.
Then there is Beijing, at the ‘undersupply extreme’, and where
an existing stock of 6,694,526 sq m will be supplemented by
only 1,756,429 sq m added over the same period as above,
representing only 25% of the current stock. demand for grade
A office space has been robust over the last year, particularly
from domestic companies, and this has resulted in solid year-
on-year rental growth. new completions will be mostly ‘top-tier’
space and occupiers should continue to prepare to pay premium
rentals as availability ratios remain stubbornly low and landlords
continue to enjoy the upper hand during the lease negotiations.
occupiers in Beijing need to take a good hard look at their
real estate expenses, focus on achieving efficiencies in their
footprints and, where possible, translate efficiencies into an
ability to shrink the space they occupy.
Just like big wave surfers study the features
of ocean waves to select their ‘gun’ (the board
best suited to the task ahead), in china, where
a massive wave of new office supply is fast
approaching many cities, real estate managers
should begin to prepare now for the implications
of this huge wave and work with their advisers to
formulate the most financially and functionally
beneficial strategies for their company.
