(Yicai) July 8 -- Shenzhen’s Grade-A office market experienced a gradual recovery trend in the first half of the year, with vacancy rates falling and the rental price decline narrowing, mainly buoyed by rising leasing demand from hard tech firms.

Four new Grade-A office projects hit the Shenzhen market in the first half, adding about 240,000 square meters, according to the latest research report by Jones Lang LaSalle. Despite that, the city’s office vacancy rate declined from 26.4 percent at the end of last year to 25.9 percent at the end of the first quarter and 24.9 percent at the end of the second quarter.

Most active leasing demand in Shenzhen’s office market stemmed from the hard tech and new economy sectors in the first half, with companies involved in smart hardware, artificial intelligence-enabled applications, and brand overseas expansion accounting for nearly 30 percent of all transaction volume, the JLL report showed.

Office space demand from industrial players covering AI, semiconductors, advanced materials, and biomanufacturing will keep expanding, supported by staff expansion and the establishment of corporate headquarters and research and development centers, said Huang Shuli, deputy managing director of corporate services for South China at Cushman & Wakefield. Such demand will deliver fresh growth momentum to Shenzhen’s Grade A office market, he noted.

As vacancy pressure eases, property owners’ pricing strategies and the overall market sentiment are shifting. JLL statistics showed that the decline in rental prices for Grade A office in Shenzhen narrowed in the past two quarters, down 2.3 percent in the first quarter from the previous one and 1 percent in the second quarter from the one before.

Core Futian was among the submarkets with the most clear rental price decline moderation, as most Grade A office buildings in core locations saw rental prices remaining flat in the second quarter.

This year, the decline in rental prices for Shenzhen’s Grade-A office spaces will likely be milder than last year’s 11.1 percent, JLL predicted. After years of deep market corrections, landlords have shifted their mindset from prioritizing volume via deep price cuts to carefully balancing destocking and pricing, with far less willingness to slash rents going forward, said Li Wenjie, managing director of JLL South China.

Nevertheless, the downward trajectory of office rents has not yet reversed. The average monthly rent for Grade A office rent was CNY144.20 (USD21.20) per sqm as of June 30, down 3.4 percent from a year earlier, per data from Cushman & Wakefield.

Moreover, steady incoming new supply will slow the pace of market recovery. About 940,000 sqm of Grade-A office space will enter the Shenzhen market in the second half, with the new office supply expected to remain elevated in the next five years, said Zhang Xiaoduan, vice president of research for South and Central China markets at Cushman & Wakefield.

“The fiercely competitive market landscape is forcing property operators to pursue innovative transformation,” Zhang noted, adding that upgrading hardware and software facilities and diversifying product offerings to build differentiated competitiveness could be an effective way to stabilize leasing performance and alleviate vacancy pressures.

Editors: Tang Shihua, Futura Costaglione