Rental consolidation to dominate office market

Rental consolidation will be the main theme of China's office market in 2013, a report from international real estate consultancy firm Cushman & Wakefield said on Thursday.

Office rents in China's major markets continued to grow in 2012, but at a slower rate.

Cushman & Wakefield expects the rental growth momentum to slow in 2013 due to the overall economic slowdown.

According to the report, after a year of rapid growth, average Grade A office rents in Beijing's CBD area steadied in 2012, taking the 7th spot in the global ranking, compared with the fifth place in 2011.

Due to scarce supply in the core sub-markets, Beijing will remain a landlords' market until 2016, maintaining a moderate rental growth rate.

Shanghai will become a sought-after destination for domestic financial institutions to set up their second headquarters in China.

In Shenzhen, nearly half of the new supply in 2013 and 2014 will be pre-committed as owner-occupied headquarters. Guangzhou, on the other hand, will face more pressure on leasing due to the abundant amount of new supply coming to the market.

The office stock in Chengdu will double in the next two years, adding more pressure to the absorption of new supply, according to the report.

"Most major cities in China, particularly Beijing, have experienced sharp increase in rents in 2011 and a stabilization in 2012," said Andy Zhang, managing director of Cushman & Wakefield China.

The sluggish global economy combined with a slowdown of Chinese economic growth has led to a fall in demand for office space.

China's economic expansion slowed to 7.8 percent year-on-year in 2012, the lowest point since the global financial crisis.

"However, major office markets currently still have relatively low stock and limited future supply, which will keep the rents on a high level," Zhang said.

For Sunny Zhang, director of research at Cushman & Wakefield China, high rents and limited supply in core sub-markets will accelerate the decentralization trend.

"With better infrastructure, talent availability and industrial capability, 2nd-tier gateway cities will have more appeal to pharmaceutical, financial, high-tech and cultural and creative industries for back offices," Zhang said.

The new policies coming up focusing on livelihood improvements and consumption stimulation will also trigger office demand from the medical, educational and wholesale and retail sectors, according to the report.