China sees decreasing vacancy rates

According to Colliers International's Greater China Office and Residential Market Overview - July 2008, the grade A office market in many major cities continued to see strong demand in 2Q 2008.

Meanwhile, a relatively moderate performance was seen in the luxury residential sales market amidst the wait-and-see attitude held by most potential buyers.  The recently published report covers the two property sectors in a number of cities in Greater China , namely Hong Kong, Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu and Taipei

Office Sector
With the sustained strong office demand in 2Q 2008, all major cities in China saw sustained rising rental trend and decreasing vacancy rate, except Shanghai where the vacancy rate edged up due to a very low base.  Amidst optimistic economic outlook, the sales market, particularly those in Beijing and Shanghai, were active in 2Q 2008, with several large transactions registered.  In Hong Kong, Grade A office rentals increased further by 4.9% quarter-on-quarter (QoQ) to US$106.70 per sq m per month (HK$77.32 per sq ft per month) as at the end of May 2008.  However, individual non-finance companies began to consider relocating out of Central to fringe business areas e.g. Causeway Bay on Hong Kong Island, in order to take the advantage of potential rental savings and the availability of floor space to meet their requirements.

In Chengdu, the damage on the office buildings in the urban areas were limited after the earthquake disaster on 12 May 2008.  However, investors held a wait-and-see attitude in the sales market.  According to Colliers International survey to foreign companies, 85% of the respondents would adjust their investment strategies in Chengdu market.  Coupled with the huge new supply of Grade A office in the near future, the expected fluctuate office demand may create pressure on the absorption of office stock.

Meanwhile, as the Olympic Games is coming soon in early August 2008, the Government intends to limit issuing the approval certificates of fit-out work to be undertaken within office buildings in Beijing, postponing some buildings' completion date to the post-Olympic period, for example, Beijing Central Point in Chaoyangmen area and Pingan International Financial Centre in the Lufthansa area.  Driven by the expansion of MNCs and large-scale domestic enterprises, there was a strong demand in Beijing.  In 2Q 2008, the total take-up of Grade A office was 94,098 sq m, and the office rental in the Zhongguancun and CBD submarkets increased 3.81% and 2.37% QoQ to US$30.66 and US$42.25 per sq ft per month respectively.

Luxury Residential Market
The luxury residential sales market in the major cities in China registered moderate activities in 2Q 2008, with most potential buyers holding a wait-and-see attitude.  For example, in Beijing, potential buyers in the strata-title sales market were sidelined in 2Q 2008, and appeared to defer their purchase decision after the Beijing Olympic Games, resulting in a moderate performance in the luxury residential market.  The upcoming Olympic Games and the sustained local economic growth are expected to keep the market in a stable performance, although there will be about 4,378 new units available in the Beijing luxury apartment market in the second half of 2008. 

In contrast to the office market, the luxury residential market in Chengdu has already experienced the impact by the Sichuan earthquake in May 2008.  As Dujiangyan, the luxury eco-residential district of Chengdu, is only 15 km away from epicenter, some luxury residential apartments in the area suffered from damages and many projects under construction were also suspended.  However, the impact has not yet significantly affected the price of villa and luxury residential properties, and the average sales price was US$1,837 per sq m.  Meanwhile, the average rental was around US$14.4 per sq m per month. 

In Hong Kong, a significant number of prospective buyers were sidelined due to the volatile global financial markets, resulting in a general contraction in the number of sales transactions in 2Q 2008.  Thanks to the sustained occupational demand, a general lack of supply and the expectation of growing inflation, the luxury residential property market recorded an encouraging growth of 8% QoQ to HK$14,868 per sq ft as at the end of May 2008.  In the leasing market, the limited supply of standard apartments in the marketplace caused a significant positive spillover to the serviced apartment units, particularly for those located close to the traditional business districts.  Overall the average luxury residential rental increased by 6.7% QoQ to US$62.43 per sq m per month (HK$45.24 per sq ft per month) as at the end of May 2008.

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