Skip Ribbon Commands
Skip to main content

News Release


Turning the corner, Guangzhou office demand strongly rebounds

According to Jones Lang LaSalle’s Third Quarter Property Review

Spurred by the domestic economic upturn, the Guangzhou Grade A office market has witnessed a substantial recovery during the third quarter of this year. This was evidenced by the decline in vacancy rates and rise in rentals, reversing the downward trajectory seen in the last three quarters since the onset of the global financial crisis. In addition, the retail market has also begun to pick up, putting a stop to rental drops. Hence, retailers have adopted a positive outlook towards the market. In the industrial property market, rental rises have been curbed due to the weak export trade activity and excess market supply. In 3Q09, despite a decline in the transaction volume as compared with the previous quarter, the overall high-end residential market in Guangzhou maintained an upward trend. In the investments market, large transactions have remained active, characterized by the dominance of domestic financial industries.

Grade A Office

The net absorption of Guangzhou’s Grade A office market in 3Q09 was about 150,000 sqm. Active domestic enterprises, particularly those in the financial industry, have been the main driver in the pickup and robust revival of demand for Grade A office. Moreover, the strong end-users’ office demand coming from domestic banks has further stimulated this sentiment. The Guangzhou Development Bank – Guangzhou Branch and Shanghai Pudong Development Bank have purchased a large amount of office space in Zhujiang New Town for their own use. Consequently, even though 130,000 sqm of new supply was completed and the city’s total Grade A office stock increased to nearly 2.4 million sqm in the quarter, the vacancy rate still witnessed a drop of 18%. However, in contrast with their domestic counterparts, demand from foreign-invested enterprises has remained relatively weak.

With the recovery in demand, owners have adopted an aggressive attitude towards rents. Some of them have even taken the initiative to increase their rents, leading to an overall rental rise of 3% q-o-q and thus stopping the rental drops that have persisted for three consecutive quarters since the outbreak of the global financial crisis. Meanwhile, the market has seen an upward tendency. The rise in the transaction volume and the recovery of investors’ confidence in the office sector have helped boost the capital values, as evidenced by the 2.3% q-o-q increase in 3Q09.

“Domestic enterprises will continue to be the leading players of office space demand in Guangzhou -for the short term. The pressure of rental drops will be greatly reduced in late-2009 and is expected to remain stable in 4Q09. However, the increase in new supply in 2010 will still put pressure on rental. On the other hand, the recent increase in high-quality supply such as OneLink Walk, TaiKoo Hui, and Guangzhou International Financial Center brings more options to tenants and promotes demand growth,” said Eric Shek, Associate Director of Markets at Jones Lang LaSalle Guangzhou.


As the economy is gradually stabilizing, the consumption market continued to increase steadily in the third quarter. From January to August, the city’s total volume of actual retail sales for social consumer goods has increased by 13.8% y-o-y. Meanwhile, rental has witnessed a pickup after undergoing a major adjustment in 3Q09, up 0.8% q-o-q. The market has been showing signs of stabilization in the quarter. And although there were still some discounts in the overall retail rental compared to the beginning of the year, those discounts were more prominent in shopping malls that have poor geographical locations and have rising pressure from the vacancy rate. For shopping malls at prime locations, the discounts in rental were relatively small compared to the beginning of the year.

Attracted by new shopping malls to be completed soon, the internal adjustment of some mature shopping malls, and the optimization of tenant compositions, many international retail brands have successively entered Guangzhou, leading to an increase in the overall leasing transactions. In light of this development, Guangzhou’s existing chain store retailers have become confident in the consumption market. In order to reinforce their presence, some local retailers have re-launched their expansion plans, thus leading to a decline in the overall vacancy rate. Driven by these favorable factors, rental has started to pick up in this quarter, increasing 0.8% q-o-q, as most owners adopted a positive attitude towards the market.

According to Simon Lam, Head of Retail at Jones Lang LaSalle Guangzhou and Shenzhen, the retailers’ confidence in the market and the pickup in the leasing transaction volume are indications of a market recovery. The high-quality shopping malls to be completed soon have continued to attract retailers. It is expected that a large variety of new brands will enter the Guangzhou market. “With the ever-increasing number of high-quality shopping malls in Tianhe District, the Tianhe commercial area will lead the way and become the core commercial center in Guangzhou in the future. In terms of rental tendency, there is little possibility that the overall rental will decline in the immediate future, but a V-shape rebound is unlikely and the room for growth is limited,” added Lam.


In 3Q09, Guangzhou’s foreign trade exports continued to decline. The export volume from January to August has decreased by 20.3% y-o-y. Apart from the continuous negative growth in the total export volume, the increase in new supply has also gradually put pressure on the logistics market. Due to the high vacancy rates of a very small number of newly completed properties, the owners have adopted price reduction strategies to attract tenants, resulting in an unprecedented, sharp decline in the overall rental in the logistics market—down 2.1% q-o-q in 3Q09. In general, the increase in the logistic outsourcing demand led to the growth of demand for third-party logistics companies, which has become the impetus of the demand this quarter. However, due to the decline in rental, most of the leasing demand was focused on the newly completed logistics warehouses such as ProLogis Logistics Park Yunpu Phase III.

In terms of business parks, amid the government's drive to promote the industrial development, the demand of domestic enterprises has helped stabilize the rental of business parks, leading to a slight decrease of 0.4% q-o-q in the quarter. A cooperative agreement has been signed to establish Micott & Basara Comic and Animation City, China’s largest comics and animation theme park in Guangzhou Development District. This project will promote the development of related business parks and supporting facilities in the district.

According to Eddie Fu, Head of Industrial at Jones Lang LaSalle Guangzhou and Shenzhen, the domestic economic improvement and the gradual recovery of the global export market will help produce a positive effect on Guangzhou’s export sector in the medium term, thus, boosting the leasing demand in the logistics market. However, the existing and upcoming supply will put a brake to the increase in rental. Regarding business parks, the increasing need for outsourcing services and innovative industries will be the growth point for demand. However, the threat of oversupply will also restrict the increase in rental.

High-end Residential

Although the housing prices in Guangzhou continued to rise in 3Q09, the growth rate has slowed down compared to the previous quarter. The rise in the quantitative value of the high-end residential market has resulted in the dampening of investors' enthusiasm to speculate in the market. In addition, with the rapid absorption of the units sold in 1H09, developers have also adopted an optimistic attitude towards the rise in future prices. This has relatively reduced the number of newly sold units and resulted in a q-o-q drop in market transaction volume in 3Q09. The sales volume of new luxury houses dropped to 1,450 units in 3Q09 from 2,000 units in 2Q09.

Because of the continuing economic recovery and the overall residential market entering an upward cycle, capital values of second-hand luxury houses continued to increase by 2.6% on a quarterly basis in 3Q09. However, the growth rate has slowed down. Although some best-selling buildings in Tianhe District have witnessed an increase of 20%, there was only a slight increase for buildings located in other areas and for second-hand owner-occupied buildings. This is one of the reasons for the low growth rate in the overall building prices. For the leasing market, due to the adequate amount of newly completed luxury houses in recent years, the leasing demand has seen no sign of recovery. In 3Q09, rental remained stable, with a slight increase of 1%, which is lower than the growth rate in sales prices.

As the market underwent a rapid rebound from its bottom and “digested” most of the previous demand resulting from the downturn in the housing market in 1H09, especially the investment demand, the market will gradually return to its rational state. The transaction volume will continue to slow down in the short term, but the owner-occupied demand will still be strong enough to support the overall level of the transaction volume. It is expected that the volume of newly sold luxury houses will still be adequate in the short term. Plus, with the rebound of housing prices from its lowest point, the capital values will gradually pick up. “The fundamental aspects of economy have maintained a sound momentum, and the overall economic conditions continued to recover, which will offset the possible risks brought by tight monetary policies. Looking ahead, we expect the market to remain stable,” noted Jack Tang, Head of Strategy Consultant at Jones Lang LaSalle Guangzhou.


Money continued to flood into the real estate market. In this quarter, the large-scale investments in real estate focused on Grade A office buildings. The increase in the new supply of high-quality office buildings, expansive monetary policies in the capital market, and the substantially growing demand of domestic enterprises for Grade A office buildings have been instrumental in the growth of the overall transaction volume.

The investments market continued to be driven by domestic buyers, especially domestic banks that have successively upgraded their office space by purchasing Grade A office buildings to improve their competitiveness. Owing to the support of favorable policies for financial industries, Zhujiang New Town has become the location of choice for many financial enterprises. Similar to China’s investment market, foreign players remained on the sideline. With the ever-growing demand and the pickup in the rental of commercial properties, investors' demand will continue to rise and investment activities are expected to remain active.


“From the current recovery in office and retail markets, Guangzhou commercial property has gradually walked out of the market downturn. Meanwhile, the stable economic growth in this period has indicated that the recovery in the commercial property market has enjoyed a solid foundation. The fact that some potential domestic enterprises have taken the opportunity of market adjustment to enter the market has offset the effect brought by the slowdown in investment activity by overseas institutional investors. It is the practical domestic demand that has made the market come out of the bottom earlier than expected,” noted Jex Ng, Managing Director at Jones Lang LaSalle Guangzhou.