Shenzhen expects office vacancies to rise, rent to drop this year

Shenzhen's office building market is expected to see vacancy rates increase and rents drop in 2019, largely due to growth in supply, according to real estate service provider Colliers International.

A total of 5.4 million square meters of new grade-A office space are projected to come into the market between 2018 and 2022.

The new supply will contribute to the increase in the vacancy rate, from 16 percent at the end of 2018 to 30 percent by the end of 2019.

Average rents are expected to drop by 4 percent in 2019.

"Shenzhen's grade-A office market is going to enter an era of oversupply. New supply is expected to reach the peak within the coming five years," Jenny Chou, director of office services at Colliers International said, referring to the reasons behind the trend.

As of the end of 2018, the size of A-grade office buildings in Shenzhen amounted to 5.8 million square meters, rising 12.6 percent year-on-year, according to Colliers International.

Average rents dropped 0.6 percent on a yearly basis to 237 yuan ($35) per square meter per month.

Despite this, the company believes the downward trend will reverse beginning in 2020.

"Average rents for Shenzhen's office buildings could return to the growth territory in 2020 when the Chinese economy gains stronger momentum. We forecast average rents to increase by 3 percent annually from 2019 to 2023," Chou said.

She added that Shenzhen's office tenants are showing more diversification, with businesses in professional services and advanced manufacturing industries becoming a major force, in addition to those in financial and technological industries.