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Record new supply to hit top-level office market, rentals under pressure
By Cherry Cao |
June 6, 2013, Thursday
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Print Edition
CHENGDU'S Grade A office market has been enjoying years of rapid growth. With large overseas and domestic companies boosting their presence in the city, new supply has been keeping flowing onto the market.
Now, the majority of landlords are under pressure to adjust rentals to maintain or attract tenants as the top-level office industry may have a lot of supply for the rest of this year, according to Savills China, an international real estate services provider.
"Since 2012, an unprecedented amount of office space has been released onto the market, with the overall vacancy rate increasing 9.2 percentage points in the last year and rents falling 12.4 percent from their peak in the first quarter of 2012," said Dave Law, head of western China research at Savills. "This trend is expected to continue during 2013, as inventories remain large and new supply continues to flow onto the market."
About 700,000 square meters of Grade A office space are scheduled to come onto the market by the end of the year, a historical high, Savills said.
Tianfu New City, in particular, is among those in the crunch. Its cluster of new developments will be released to the market soon.
Commercial interest in the new space is expected to be relatively weak given its distance from the city center and its poor surrounding infrastructure. Competition is keen from a plentiful supply of more attractive options closer to the downtown.
In the first quarter of 2013, rents in Chengdu's Grade A office buildings fell to an average 112 yuan (US$18) per square meter per month, a quarter-on-quarter drop of 5 percent, according to Savills. The vacancy rate contracted 3.4 percentage points to 37.6 percent during the same period,
One new project, The Atrium, which came on line in the first quarter, added approximately 37,383 square meters of available space to the leasing market.
Central Business District
No top-quality office space was added to the CBD in the first quarter, with existing properties maintaining stable occupancy rates. Average rents, however, fell 4.7 percent from the previous three months to 123.5 yuan per square meter per month, mainly reflecting increased competition from surrounding areas. The district vacancy rate fell 2.9 percentage points to 29 percent.
Tianfu New City
Tianfu New City also had no new high-quality commercial space recorded in the first quarter. Average rents dropped 8.2 percent, quarter-on-quarter, to 102.8 yuan per square meter per month after some landlords, aware of pending competition from future projects, slashed rents in exchange for securing longer-term leases. Vacancy rates, meanwhile, declined by 3.5 percentage points to 34.7 percent, amid a net take-up of 12,382 square meters.
Science Business District
No new supply was recorded in the district in the first quarter. Average rents fell by 1.7 percent from the previous quarter to 117.8 yuan per square meter per month. Net take-up totaled 644 square meters, while the vacancy rate for the district as a whole stood at 39.3 percent, reflecting the 180,000 square meters of new space that came onto the market in the third quarter of 2012.
Dongda Street
The opening of The Atrium, a development by Tishman Speyer, added nearly 37,400 square meters of supply to this area.
The average vacancy rate fell to 45.2 percent, though the take-up of 57,200 square meters was a quarterly record. Average rents dropped 8.6 percent to 102.9 yuan per square meter per month.
Now, the majority of landlords are under pressure to adjust rentals to maintain or attract tenants as the top-level office industry may have a lot of supply for the rest of this year, according to Savills China, an international real estate services provider.
"Since 2012, an unprecedented amount of office space has been released onto the market, with the overall vacancy rate increasing 9.2 percentage points in the last year and rents falling 12.4 percent from their peak in the first quarter of 2012," said Dave Law, head of western China research at Savills. "This trend is expected to continue during 2013, as inventories remain large and new supply continues to flow onto the market."
About 700,000 square meters of Grade A office space are scheduled to come onto the market by the end of the year, a historical high, Savills said.
Tianfu New City, in particular, is among those in the crunch. Its cluster of new developments will be released to the market soon.
Commercial interest in the new space is expected to be relatively weak given its distance from the city center and its poor surrounding infrastructure. Competition is keen from a plentiful supply of more attractive options closer to the downtown.
In the first quarter of 2013, rents in Chengdu's Grade A office buildings fell to an average 112 yuan (US$18) per square meter per month, a quarter-on-quarter drop of 5 percent, according to Savills. The vacancy rate contracted 3.4 percentage points to 37.6 percent during the same period,
One new project, The Atrium, which came on line in the first quarter, added approximately 37,383 square meters of available space to the leasing market.
Central Business District
No top-quality office space was added to the CBD in the first quarter, with existing properties maintaining stable occupancy rates. Average rents, however, fell 4.7 percent from the previous three months to 123.5 yuan per square meter per month, mainly reflecting increased competition from surrounding areas. The district vacancy rate fell 2.9 percentage points to 29 percent.
Tianfu New City
Tianfu New City also had no new high-quality commercial space recorded in the first quarter. Average rents dropped 8.2 percent, quarter-on-quarter, to 102.8 yuan per square meter per month after some landlords, aware of pending competition from future projects, slashed rents in exchange for securing longer-term leases. Vacancy rates, meanwhile, declined by 3.5 percentage points to 34.7 percent, amid a net take-up of 12,382 square meters.
Science Business District
No new supply was recorded in the district in the first quarter. Average rents fell by 1.7 percent from the previous quarter to 117.8 yuan per square meter per month. Net take-up totaled 644 square meters, while the vacancy rate for the district as a whole stood at 39.3 percent, reflecting the 180,000 square meters of new space that came onto the market in the third quarter of 2012.
Dongda Street
The opening of The Atrium, a development by Tishman Speyer, added nearly 37,400 square meters of supply to this area.
The average vacancy rate fell to 45.2 percent, though the take-up of 57,200 square meters was a quarterly record. Average rents dropped 8.6 percent to 102.9 yuan per square meter per month.
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