Shrinking leasing demand due to the coronavirus outbreak led to a decline in the Guangdong-Hong Kong-Macao Greater Bay Area office market in the first half of the year, but the long-term outlook remains positive given the resilience of the Chinese economy, international real estate services provider Savills says.
The grade-A offices rent index in the Bay Area dropped by 4.1 percent to 159.7 in the first six months of the year compared to the second half of 2019, Savills said.
Average rents for Grade-A offices in Hong Kong have declined for four consecutive quarters, with the rent index falling by 4 percent to 184.9 in the first half of the year from the second half of 2019.
While Grade-A office supply in the Bay Area has been increasing since last year, demand is seeing slower growth. As a result, a number of cities in the region are facing the pressure of oversupply
Carlby Xie
head of southern China research at Savills
Shenzhen and Guangzhou recorded 141.5 and 150.9 in rent indexes over the same period, dropping 4.7 percent and 3 percent, respectively.
Carlby Xie, head of southern China research at Savills, said: ''While Grade-A office supply in the Bay Area has been increasing since last year, demand is seeing slower growth. As a result, a number of cities in the region are facing the pressure of oversupply.”
''The coronavirus outbreak, meanwhile, added to the burden, further dampening leasing demand,” Xie said.
Office investment activities in the Bay Area also slowed in the first half of the year. According to the services provider, the price index of Grade-A offices in the region declined by 3.6 percent to 204.5 in the first six months of 2020 compared with the second half of 2019.
Shenzhen recorded the steepest decline of 8.5 percent, followed by Hong Kong, 4.3 percent; and Guangzhou, 4.2 percent.
''Due to the impact of the coronavirus pandemic, tertiary industry in the Bay Area is expected to face challenges in the short term, especially in sectors like tourism, offline retail and foreign trade. Business operations are going to remain tough and office demand is projected to further contract,” said Xie.
"But given that the Chinese economy is gradually recovering, we are still positive over the economic fundamentals of the Grade-A office market in the region,” he added.
Xie noted that telecommunications, media and technology, medical services and finance sectors are still showing active leasing activities.
While the coronavirus outbreak has dealt a blow to the Chinese economy, it has also given birth to new business models, promoting the development of online medical services.
Meanwhile, the central government’s document on supporting financial reform and opening-up in the Bay Area, issued in May, brings new opportunities to financial enterprises in the region.
"For Hong Kong, the implementation of the National Security Law will boost the local economy and its office market. We expect Hong Kong's market to pick up in the second half of the year,” Xie added.
