Commercial and residential buildings are visible in this aerial photograph taken in Shenzhen, where pre-owned property prices climbed more than 10 percent accumulatively last year. (PHOTO / IC)
As Shenzhen’s business life crawls back from months of disruption unleashed by the coronavirus shock, south China’s premier financial hub is breathing a sigh of relief — migrant workers are back from forced vacations, with the bulls in action again on the bourse. But, the commercial office-rental market has yet to return to its pre-pandemic heyday.
The office landscape is putting on a new face. Businesses that have experimented with the new model of having employees working from home since the virus hit may find the practice feasible to a certain extent in cushioning the financial backlash from the economy’s slowdown, lingering tensions between the world’s two economic superpowers, and the public-health crisis.
Remote working, enforced to curb the pandemic’s spread, has emerged as a new option for companies that could reshape the terrain of Shenzhen’s commercial office sector.
“Since the coronavirus outbreak, the vitality of Shenzhen’s office market has been significantly undermined. Due to the uncertainties in the world economy and the escalation of the pandemic, enterprises in Shenzhen are increasingly adopting a conservative attitude toward office renting,” said Jenny Chou, director of office services at international real-estate services provider Colliers International.
“Many of the companies’ office relocation or expansion plans originally scheduled for the first half of this year have been scrapped, with foreign businesses taking the lead,” she told China Daily.
Demand still ‘robust’
But, generally, Shenzhen’s office market has been stable, with only a few companies shrinking their office space or quitting, said Chou. Some companies, mostly small and medium-sized enterprises that had signed new office leasing contracts before the Chinese New Year, have chosen to pack up as they’ve been unable to renovate their offices or put their operations back on track.
In response, office building owners have gone to the rescue — offering preferential rents or discounts to attract tenants. Office space in Shenzhen’s prized business districts like Futian and Nanshan has been leased at rents much lower than normal market prices. At Nanshan Science and Technology Park — southern China’s tech showpiece that’s home to some of the nation’s biggest technology companies — rentals have come down to as low as 55 yuan (US$7.70) per square meter per month, from a high of around 90 yuan per sq m a year ago — according to a local media report citing a property agent.
Yu Donghui, an entrepreneur who runs a software company, used to rent a 300-square-meter office in the Nanshan district. He was forced to reduce the space by half after the pandemic almost brought his business to the verge of collapse in the first quarter of this year.
“The outbreak forced us to try out remote working. It proved that the model works quite well. By reducing office space, we’re able to save a lot in operating costs and have a bigger chance of riding out the storm,” said Yu.
Remote working has been practiced by businesses worldwide for years. But, its popularity in China has lagged behind other countries. The pandemic has given the concept a boost.
According to a report by market research firm Zhiyan Consulting, there were just 1.8 million employees working remotely on the Chinese mainland in 2005. The number doubled in 2014 and hit almost 5 million four years later.
The value of the Chinese mainland remote working market is projected to grow from around 19.4 billion yuan in 2017 to 31.8 billion yuan this year.
Chou said the pandemic poses a challenge that tests the “bearing capability of both landlords and tenants” and “those with weak health could face a breakdown at this point”.
“Against this backdrop, more businesses could trim their office space to allow staff to work remotely, or move from the central business districts to areas with lower rents. This will be a future trend for enterprises,” she said.
The change in the working model, however, is expected to pile pressure on Shenzhen’s office market, which has seen a glut in recent years.
According to Colliers International, the city’s office market had a 21 percent vacancy rate in the first quarter of this year, while average office rents had dropped 2.6 percent quarter-on-quarter to 222 yuan per square meter a month.
The high vacancy rate is not only the result of the coronavirus outbreak, Chou noted. Office supply in Shenzhen has been soaring since 2016, which has contributed to the current situation. Colliers International predicted that 1.1 million square meters of Grade-A offices are expected to come on stream by late 2020.
“The vacancy rate of Shenzhen offices is expected to go up further in the short term, with rents declining further,” Chou predicted.
Sam Lai, senior director and head of southern China commercial department at Savills, is positive about the outlook.
The strong resilience of Shenzhen’s office market will help the city recover from the pandemic faster than most other mainland cities, he said. “For the longer term, the demand for offices in Shenzhen will remain robust. More enterprises plan to set up their Bay Area headquarters in the city. These factors will support the growth of the city’s office market.”
Lai expected the office vacancy rate to peak by the end of next year, and the market would subsequently “return to spring”.
