What’s new: Prime office buildings in southern China’s tech hub Shenzhen are losing luster for investors as the vacancy rate rose to a record 24.5% amid a weak business environment.
During the first half, investment institutions accounted for 14% of office building transactions in Shenzhen, down from 19% at the end of 2022, according to real estate service firm Cushman & Wakefield. It marks a sharp drop for investment companies’ share of the city’s office building deals since before the pandemic, when the sector accounted for 30%–40%.
“In the first half of the year, over 80% of the office buildings in Shenzhen were purchased by buyers for self-use,” said Jacob Chen, head of capital markets of South China at Cushman & Wakefield.
Investor sentiment has cooled as the vacancy rate of Class A office buildings in Shenzhen climbed to 24.5% in June, the first time the rate topped 24% since the end of 2020, according to Cushman & Wakefield.
The context: Investment institutions are showing more hesitancy to make large commitments to office space in Shenzhen since 2023 amid growing economic headwinds, Chen said.
Office buildings in Shenzhen have recorded rising vacancy rates and falling rents over the past few years. According to Cushman & Wakefield, the compound annual growth rate of rental prices for Grade A office buildings in Shenzhen between 2009 and 2018 was 9.2%. After 2018, the rate swung to a decline of 7.4% as supply outpaced demand.
The average rent in Grade A office buildings in Shenzhen has dropped 28.6% from the peak in 2018.
Since 2019, the city’s office vacancy rate has remained around 20%, Cushman & Wakefield data showed.
The vacancy rate is likely to rise further as nearly 1 million square meters of Grade A office projects are planned to go on the market this year, according to Zhang Xiaodua, deputy research head of Cushman & Wakefield.
Contact reporter Han Wei (weihan@caixin.com) and editor Bob Simison (bob.simison@caixin.com)
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