With the successful conclusion of the two sessions, China continues to embark on a new journey of development. In 2024, accelerating the development of new quality productivity and promoting high-quality development will become an important force in the economic work throughout the year. Focusing on the Greater Bay Area, with the release of innovation momentum and the transformation and upgrading of industries, more high-tech and high-quality new industries in the region will achieve rapid development, which in turn will drive the growth of regional office market demand and help the market recovery.
Recently, Savills Southern China Research released the 2023 Greater Bay Area Grade A Office Index, reviewing the changes in the supply and demand pattern of the regional office market and looking forward to how the market will achieve high-quality development in the new journey.
For the year, the GBA Grade A office market added a total of approximately 2.168 million sq m, driving the total regional stock up 6.3% year-on-year to 35.556 million sq m.
Figure 1: New Supply, Net Absorption and Vacancy Rate in the Greater Bay Area, 2019-2023
During the year, due to cyclical headwinds, uncertainties in the macro environment and operational difficulties faced by many enterprises, most office occupiers remained cautious about their leasing strategies and chose to tighten their corporate real estate budgets. As a result, rental demand in the GBA has been suppressed. While annual net absorption in the region rose 21.7% year-on-year to 467,000 sqm, driven by stronger financial incentives and more flexible lease terms from most landlords, it remained 54.3% below the average of the past five years. By the end of the second half of the year, the average vacancy rate in the Greater Bay Area continued its upward trend since 2019, rising by 1.4 percentage points month-on-month and 3.2 percentage points year-on-year to 27.2%.
In 2023, the Grade A office leasing and sales market in the Greater Bay Area will remain tenant-side and buyer-side markets. As of the end of the year, the regional rent and price indices decreased by 5.3% and 5.2% year-on-year respectively.
Rental Performance:
Figure 2: Rental Index, 1H/2014 to 2H/2023
Bringing in enough new tenants remained the biggest challenge throughout the year, with landlords generally taking more proactive steps to stabilize or increase occupancy rates, in addition to providing necessary and immediate rent reductions. For landlords with rental income commitments in the capital market or other areas, maintaining the stability of the face rent and extending the rent-free period have become the main strategies in the negotiation of lease terms. As a result of these factors, net effective rents in various cities have declined. At the end of the period, the rental index of Grade A office buildings in the Greater Bay Area decreased by 3.7% QoQ and 5.3% YoY.
Price Performance:
Figure 3: Price Index, 1H/2014 to 2H/2023
During the same period, due to the combined impact of uncertainties in the economic situation, rising US dollar interest rates, weakening investment confidence, increased leasing risks and declining rents, the office price index of GBA cities continued its downward trend in 2022, falling by 2.9% month-on-month and 5.2% year-on-year.
2024: Although the market is still under short-term pressure, the favorable policy is expected to increase momentum
In 2024, the Government will continue to make efforts to promote economic growth by improving the business environment, promoting the development of strategic emerging industries, and enhancing the attractiveness of foreign investment, which will inject more growth momentum into the office market in the Greater Bay Area. It is true that the office leasing and investment market will continue to face challenges due to supply pressures in most cities, relatively weak demand, and prudent leasing strategies by companies. Over the next 6-12 months, office property performance will remain under pressure, with price and rental changes expected to remain low.