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News Release


Guangzhou Property Market on the Mend with Recovering Investment Sentiment

According to Jones Lang LaSalle's Second Quarter Property Review

According to Jones Lang LaSalle's Second Quarter Property Review, the Guangzhou office market showed some signs of recovery as demand from domestic companies remained relatively active, which provided support to the market. Meanwhile, rents in the retail sector continued to fall due to the city’s weak consumer spending. For the industrial property market, the rise in domestic demand has offset the impact of the global economic slowdown. Thus, the rents of warehouses and business parks remained stable due to the relatively steady demand. Owing to new loans and some of the government’s incentive measures, the investment market has begun to pick up. The high-end residential market rebounded with a larger transaction volume, which, in turn, boosted the average transaction price in the mass residential market.

“The downward tendency in the Guangzhou real estate market since late-2008 has eased over the last two months, indicating that the market is gradually on the mend and that the investment sentiment is recovering,” noted Jex Ng, Managing Director at Jones Lang LaSalle Guangzhou.

Grade A Office

Due to the uncertain outlook of the global economy, foreign-funded companies showed little interest to expand their offices. Some companies relocated to office buildings with lower rents to save costs, thus driving the transactions of Guangzhou Grade A office buildings in 2Q09. Most foreign-funded companies continued to adopt renewal and resources integration strategies. Meanwhile, cases in which leasing areas were reduced are on the rise. In 2Q09, active office demand from domestic companies was still the mainstay, most of which came from the finance and energy sectors.
As there was still no new supply in the Guangzhou Grade A office market in 2Q09, net absorption rose to approximately 30,000 sqm due to the increase in domestic demand. In addition, the overall vacancy rate stabilized at 19.8%, a slight drop compared with that in 1Q09. With owners worrying that the market has faded over the recent months despite the fact that overall rents are continuing to fall, the decline in rate has been substantially moderate compared with that in 1Q09, dropping from 8.8% to 3.1%.

The rise in sales volume and increasing end-user demand from domestic companies stabilized the capital value level in 2Q09, up 1.8% q-o-q versus a decrease of 10.1% q-o-q in 1Q09. This led to a polarization between rents and capital values.

Looking at the second half of 2009, the demand from MNCs is unlikely to rebound due to the uncertainty of the global economic recovery. All of 2009’s new supply will come on-stream in the second half of the year. Nearly 400,000 sqm of new supply located at Zhujiang New Town and the Tianhe CBD is going to be completed, which will add more pressure to the market. “With the increase in new supply and the slow recovery of demand, we expect vacancy rate in 2H09 to rise to over 20%,” noted Victor Mar, Head of Markets at Jones Lang LaSalle Guangzhou. “Rents will continue to fall. However, the decline is expected to be moderate,” he added.


In 2Q09, the growth rate of the retail sales of consumer goods in Guangzhou continued to slow down compared with the same period last year. The weakening purchasing power has been affecting the expansion plans of retailers. Due to lower profit expectations, some retailers tend to consolidate their stores and cut down their rental budget. Retailers are cautious about new store expansion plans. In particular, expansion plans in non-core business districts will be significantly affected.

Due to retailers’ slower expansion, the overall vacancy rate of the retail market will grow to 6.8%.  Rental transactions in 2Q09 are mainly characterized by medium-end brands and are focused on core shopping areas. With a decline in demand and a rise in vacancy rate, owners will offer more preferential terms to attract new tenants. Rents in 2Q09 continued to fall, down 5.7% q-o-q, albeit at a slower decline rate.

Although it is expected that the economic slowdown will inevitably affect customer spending in Guangzhou, the rise in consumption for full-year 2009 is deemed to be in double digits. In terms of new supply, a total of 100,000 sqm of shopping space will be completed in 2H09. This includes One Link Walk in Tianhe district, which will transform the landscape of the Guangzhou retail market. Retailers tend to be cautious as a whole, which exerts pressure on traditional retail areas rather than on newly built shopping malls. In fact, a number of retailers showed their interest in new shopping malls in core shopping areas. As a result, demand remains high. For example, a Spanish fashion brand will set up its first Guangzhou store at OneLink Walk, which will open by end-2009.


Export value in the first five months of 2009 in Guangzhou decreased by 21.6% y-o-y. The negative increase in the total export value continues to rise. However, policies on expanding domestic demand have offset the impact of the slowing global economy on the industrial property market, especially leasing demand in the logistics market. This is evidenced by Sinotrans leasing all the warehouse area of a newly completed logistics park in Guangye Development Zone in 2Q09.

It takes a long time to realize industrial upgrading. However, due to the good foundation of high-tech industries in Guangzhou and a stable domestic demand, as well as a moderate impact of the financial turmoil on the demand for industrial parks, Guangzhou Science City remains popular with foreign-funded companies. This is evidenced by a foreign company renting an office building in the park.
Due to the relatively stable demand in 2Q09, the rents of logistics parks and industrial parks both remained at the same level as those in 1Q09. However, the significant increase in the new supply of logistics parks in 2H09 will further drive up the overall vacancy rate, making it very difficult for logistics park rents to rise in a short period of time. However, in the industrial park market, rents are expected to remain stable in 2009. From a medium-term and long-term point of view, the demand of some high-tech enterprises to relocate from the city’s downtown area to places with lower rents to save costs will support the development of industrial parks.


To stabilize economic development, the government issued a series of incentive measures to promote the development of the real estate market and a favorable policy of easing credit. Thus, with more credit flowing into the real estate sector, market liquidity is enhanced. Meanwhile, the fact that interest rates have long been maintained at a low level helps promote demand for logistics investment.

Although foreign institutional investors still adopt a cautious stance, domestic companies and private investors are relatively active. From a medium-term and long-term point of view, the insurance sector has shown some interest in the real estate market. In addition, the availability of more investment channels such as REITs has provided a certain long-term demand for the real estate investment market.
Apart from the active residential market, office properties have become investors' favorite target. Under the context of the government’s economic stimulus policies and state-owned enterprises’ demand for development, demand from large state-owned enterprises to purchase Grade A office for self-use is on the increase, leading to a growing number of large transactions in the market. This is evidenced by China Development Bank purchasing half of R&F Winner Plaza for office use.

High-end Residential

In 2Q09, the Guangzhou high-end residential market showed a full rebound, with both sales volume and selling prices seeing an increase. Moreover, the increasing number of transactions in high-end residences has pushed the average transaction price of mass residences in June to RMB 9,976 per sqm. Owing to the government’s efforts to increase capital liquidity, as well as a series of incentive measures issued to promote the development of the real estate market, investors in the high-end residential market have regained their confidence. As such, they gave incentives to boost sales volume. For instance, since Guangdong cancelled the restraints originally imposed on purchasers from Hong Kong, Macau, and Taiwan, the market has seen more and more investors from these regions. This has promoted transactions in high-end residential buildings, including those in Zhujiang New Town.

Due to the brisk high-end residential market and an increasing amount of new supply attributed to developers in 2Q09, transaction volume in high-end residences monitored by Jones Lang LaSalle increased by a large margin to about 2,000, almost equaling the level of the same period in 2007, which, has in turn brought about the rebound of capital values, or rather, from a decrease of 4.9% in 1Q09 to an increase of 5.4% q-o-q in 2Q09.

Although the demand in the rent market has not been fully revived due to the fact that foreign companies are making every effort to save costs, the rent level has nearly hit its bottom from the continuous decline in the last five quarters. A slight decrease of 1.4% q-o-q was witnessed in 2Q09.
Looking ahead to 2H09, the high-end residential market will maintain a stable development. In the short term, interest rate is projected to witness a continuous downturn and government policies are expected to maintain market stability, which will not likely bring any negative effect on market demand. More new supply, however, is expected; as a result, there is limited room for a substantial increase in housing prices. Meanwhile, the uncertain outlook for China’s economic growth, the expanding decrease in export volume in Guangzhou and its weak consumption level have brought worries on the support to the market. In the rental market, the high-end residential leasing market, which relies on foreign high-level management, will likely not be revived in the second half of 2009 due to the uncertain global economy. This means that rent will still face pressure.


"With the stabilization of China’s economy, the pressure on Guangzhou’s real estate market will gradually ease. However, sectors with relatively more supply will still have to suffer a 'double' blow dealt by a weak demand and an increase in vacancy rate. In the short term, the rent market is unlikely to revive. Despite this fact, the investment market is still optimistic. Low interest rate, abundant capital and the presence of only a small number of non-performing assets have provided support to housing prices and become instrumental in developing the investment market. Overall, property markets in all sectors are believed to remain stable in the second half of 2009. However, a major and lasting rebound cannot appear until a continuous recovery in the economy is seen," noted Marcos Chan, Head of Research at Jones Lang LaSalle Greater Pearl River Delta.