As a barometer of economic development, how has the office building market performed this year?
The latest report from JLL shows that in the first quarter, the net absorption of office building markets in 40 major cities across China was 814000 square meters. Among them, the net absorption of office building markets in 20 key cities (including first tier cities) was 627000 square meters, a decrease of 19.0% month on month and a significant increase of 34.4% year-on-year, indicating that the market is in a recovery period.
The activity of the office building market reflects economic vitality. From the perspective of the macro environment of the industry, the overall macroeconomic situation in China has started well in 2024, achieving a GDP of 29.6 trillion yuan in the first quarter, a year-on-year increase of 5.3%, and a growth rate increase of 0.1 percentage points compared to the fourth quarter of 2023. From the perspective of the three major demands, investment growth has accelerated, while consumption and exports have maintained stable growth.
In the macro environment, finance, technology, and professional services have become the "three carriages" driving the expansion of demand in the national office building market.
The report shows that in the field of professional services, law firms have continued last year's expansion trend and become the main demand driver in the A-level office building market. Traditional education, online education, study abroad consulting and other sub sectors have shown strong performance, with transactions recorded in multiple provincial capital cities such as Guangzhou, Chengdu, Nanjing, Wuhan, and Xi'an.
In the financial field, in addition to the traditional financial industry, small loan companies have shown active new demand in cities such as Chongqing and Hefei. In the field of science and technology Internet, the live broadcast e-commerce company seized the low price window, and a new round of demand emerged, growing against the trend in Haikou, Changchun, Nanchang, Guiyang and other cities.
"Overall, in the first quarter of 2024, the macroeconomic situation showed a recovery trend, with stable and positive business operations, and increased activity in the office building market in key cities," said Zhongzhi Research Institute. However, it is worth noting that the current trend of exchanging price for quantity in the market has not changed, and office rental prices are still declining.
According to a report by JLL, in the first quarter, the average rent of Grade A office buildings in 40 major cities across China was 84 yuan/square meter/month, with a month on month decrease of 0.4% to 6.6%. Rent is still in the bottom line, and direct price reductions and relaxation of business terms have emerged in homeowner leasing strategies.
For example, in the Beijing market, homeowners realize that direct rent reduction is an effective way to facilitate transactions, and rent is approaching the bottom line price that only includes office property operation and financial interest costs. Some homeowners are promoting transactions through more flexible methods such as increasing intermediary commissions, reducing deposit fees, providing extended rent free periods, or providing decoration subsidies.
"Nowadays, homeowners have full expectations for a weakening of market fundamentals and a general increased willingness to ensure cash flow stability through rental concessions," the report said.
According to statistics from major commercial districts across the country, Zhongzhi Research Institute found that 26.3% of the sample commercial districts saw a month on month increase in office rental fees in the first quarter, while the rental fees in Hangzhou Xixi and Chengdu Financial City showed relatively large month on month increases, both of which were 0.55%; The rent in 16 commercial districts, including Wuhan Optics Valley, Qingdao Central Business District, and Chengdu Chunxi Road, has increased by 0.1% to 0.5% month on month; The rent of office buildings in the three business districts of Tianjin Quanye Market, Chongqing Monument to the people's Liberation and Nanjing Olympic Sports increased by less than 0.1% month on month.
More commercial districts have shown a downward trend in office rental prices, with 71.3% of the sample commercial districts experiencing a month on month decline in rental prices in the first quarter. Eleven commercial districts, including Shenzhen Houhai and Tianjin Huayuan, experienced a month on month decline of over 1.0% in rental prices, with Shenzhen Houhai having the largest decline of 1.69%; 20 commercial districts including Guangzhou Huanshi East, Shenzhen Bao'an Central District, and Tianjin Youyi Road experienced a month on month decline of 0.5% to 1.0%, while 23 commercial districts including Shanghai Wujiaochang, Changsha Nanhu Road, and Chengdu Renmin South Road experienced a month on month decline of 0.1% to 0.5%.
Zhongzhi Research Institute stated that since the second half of 2023, the rental demand for office buildings in key cities has gradually begun to recover; In the first quarter, the office building market in key cities continued its recovery trend in the fourth quarter of the previous year. In some areas, inquiries and tours of office buildings were more active, and the demand was mainly for renewal and relocation. In terms of price, tenant enterprises are still relatively sensitive to cost control. In order to seize market recovery opportunities and reduce vacancies, homeowners are more actively adopting methods such as lowering rent quotations and formulating flexible lease terms to attract tenants.
From the perspective of vacancy rates, data from JLL shows that the vacancy rates of Grade A office buildings in the four first tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen are 12%, 23%, 21%, and 26%, respectively. In the first quarter, only 2 out of 20 key cities in China had a year-on-year increase in Class A vacancy rates, all caused by supply side disturbances. Among them, Chongqing had the largest increase, and the pressure of supply and demand affected the vacancy rate, which increased by 1.5 percentage points to 28.1%.
At present, among the 20 key cities in China, 9 cities have a vacancy rate of over 30% for Grade A office buildings, including Chengdu, Wuhan, Changsha, Xiamen, Zhengzhou, Qingdao, Tianjin, Shenyang, and Ningbo, which are 31%, 36%, 31%, 37%, 34%, 39%, 36%, 37%, and 30% respectively.
Looking ahead, Jones Lang LaSalle stated that as a series of major risks affecting the macro fundamentals of the Chinese economy gradually emerge, under the approach of "seeking progress while maintaining stability" and "establishing first and then breaking through", it is expected that more stable growth policies will be further refined and implemented, driving marginal improvements in social expectations.
"In the office building market, after experiencing a complete market cycle, homeowners are gradually bridging the market information and execution gap, responding to market perception with rapid strategic adjustments, which will greatly reduce the operating costs of enterprises and other end users, have a positive impact on improving the business environment and stimulating market vitality, thereby enhancing the risk tolerance and innovation spirit of the whole society, and boosting development confidence," said JLL.
The Zhongzhi Research Institute believes that the government work reports of the two sessions clearly propose to "vigorously promote the construction of modern industrial systems and accelerate the development of new quality productive forces". It is expected that macroeconomic policies will continue to be strengthened this year, stimulate the vitality of business entities, and the demand for office building leasing in key cities is expected to remain released. The owner may continue to take measures of exchanging price for quantity to reduce vacancies, and the rent of office buildings in key cities may continue to be adjusted in the short term.