(Yicai Global) April 25 -- Office rental rates in prime Shenzhen locations were down between 20 and 30 percent annually in the first quarter as firms based in the heart of the city moved out to cheaper locations.
The average rent of a high-end office building in the southern tech hub fell 4.1 percent to CNY225.8 (USD33.61) per square meter, according to data from London-based real estate agency Savills -- but market insiders say the situation is a lot worse up close.
The market is "extremely bad" this year in the upmarket Futian district, a commercial rental agent who wished to remain anonymous told Yicai Global. "Rent at one renowned office building was CNY450 a square meter this time last year, but now it's less than CNY300."
Shenzhen's commercial rent had been increasing the fastest among China's first-tier cities -- which also include Beijing, Shanghai and Guangzhou -- over the past decade, thanks largely due to its focus on high-tech and finance sectors. But as a large number of peer-to-peer lending platforms went bankrupt and flunked on their bonds, the office leasing market has proved to be a major risk.
Firms began terminating their leases in the third quarter, said Savills' South China Research Director Xie Jingyu, adding that the landmark 10 story Ping'an Finance Center was one of those hit. The building spans 30,000 square meters of floor space.
The market has not yet recovered, Xie added, saying some financial companies in downtown Futian began renting less space earlier this year to reduce their rental costs and that has bumped up the vacancy rate for the first quarter.
"We could do nothing but lay off employees and move to a 100 square meter office in a remote location," the founder of a small company in the area told Yicai Global. "We couldn't afford one downtown," he added, saying his sector hit a speed bump last year.
While growth in demand has been waning, supply is still increasing. Seven projects totaling 500,000 square meters were opened in Shenzhen in the first quarter, but demand only rose by 259,000 square meters -- meaning barely half of that space is filled.
The vacancy rate for high-end office buildings in the city was 18.2 percent at the end of the first quarter, up 0.2 point from the previous fourth, according to Savills.
The rising vacancy rate is pushing down rents, but Shenzhen will retain a large supply of office buildings, added Xie. About 1.1 million square meters of luxury office space will be delivered this year, with more than half opening up in the downtown Futian and Qianhai districts, he said.
While more e-commerce firms are opening up and creating demand for desks, they only make a small contribution and this will not ease woes in the rental market, Xie added, saying the vacancy rate is set to keep going up.
Editors: Tang Shihua, James Boynton