20 September 2018

Guangzhou, Shenzhen commercial landlords scramble for tenants

Consumer goods manufacturer Procter & Gamble (P&G) has reportedly signed a deal to rent 14 floors of a brand-new grade A office tower in Guangzhou’s Zhujiang New Town {珠江新城}. One would be hard put looking for a better address in the business district. The tower stands above a metro station and next door to the deluxe Jumeirah Hotel. To top it all, P&G only pays a monthly rent of less than 100 yuan (US$16.41) per square meter (sqm).

Also within the Zhujiang New Townthe owners of Guangzhou East Tower have begun wooing prospective tenants for the landmark office tower — three years ahead of its projected completion in 2016. Landlords usually start to look for tenants one or one and a half years before the project launch. Funded by Hong Kong-based Chow Tai Fook Enterprise, the tower promises to be the city’s tallest, comprising 117 storeys and offering 300,000 sqm of office and retailing space.

Guangzhou is hardly the only place with an excess stock of commercial properties.

In Shenzhen, media reports say a shopping mall operator has promised a two-year rent waiver and a 10,000 yuan per sqm fitting-out allowance in a bid to lure US fashion brand Hollister to open a store in his property.

China Times reports that the occupancy rate of the 384-meter Shun Hing Square {地王大廈}, once Shenzhen’s tallest building, dropped from 98 percent in March 2012 to 80 percent earlier this year.

Another extreme case is the 75-storey SEG Plaza {賽格廣場}, Shenzhen’s third tallest skyscraper located in the bustling Huaqiangbei {華強北} area. Shenzhen Economic Daily reports that the city’s sluggish economic expansion and oversupply of office space have dragged down rents at the tower by more than two thirds over the past two years to 70 yuan per sqm.

The supply-demand imbalance looks set to worsen in the two tier-one cities.

Guangzhou has a total of 3.53 million sqm of unoccupied retailing space and 3.24 million sqm of vacant office space as of September, while several new developments are adding another 680,000 sqm of retailing space and 520,000 sqm of office space this year, realty consultancy Savills notes in a report.

In Shenzhen, three new grade A office towers will be available for lease by year-end, offering more than 270,000 sqm of office space, and next year a fresh supply of 1.13 million sqm will be added, Shenzhen Economic Daily notes, citing figures from real estate adviser DTZ.

The staggering oversupply was doomed to happen when more than three years ago, a bunch of developers, big and small, eagerly snapped up plots and launched projects under the prevailing high-leverage, quick-expansion model.

No policy price caps, no pre-sale bans.

Commercial properties were seen as a safe haven to hedge against uncertainties in the realty sector, and the situation only worsened as local authorities sold land with abandon to fill government coffers and cadres encouraged the building of more skyscrapers as a sign of economic development.

But with today’s more cautious business outlook, most firms and retailers tend to renovate rather than rent new space. In such a buyers’ market, the scramble for tenants is bound to be a bruising and agonizing battle.

– Contact the writer at [email protected]




EJ Insight writer

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