Office Lessors Offer Leisure Facilities, Flexible Terms To Compete For Tenants Amidst Record Vacancy

CHINA – Lessors of Grade A office space in Shenzhen are not just slashing office rents to attract tenants. They are also providing bespoke facilities and flexible lease terms as they compete to lure fast-expanding tech companies as vacancy hit a record high, reported the South China Morning Post (SCMP) on Tuesday morning (27 October).

In Q3, the special economic zone’s vacant office space reached a whopping 2.4 million sq m. That’s equivalent to around 13 times the gross floor area (GFA) of the IFC towers in Hong Kong, said CBRE. Another property consultancy JLL revealed that Shenzhen’s vacancy level hit 27.8 percent in October.

“We see companies from the sectors of technology, media and telecom as ‘new-economy’ firms”. With the outbreak of Covid-19, there has been higher demand for the services provided by these new-economy firms and we are seeing these firms account for about 60 per cent of the new office leasing in Shenzhen,” said property consultancy Knight Frank’s Associate Director for Research & Consultancy for Greater China Martin Wong.

However, these new-economy enterprises require huge office space and customised facilities as they want to provide leisure and entertainment areas as well as spacious pantries to attract and retain personnel who often work over 12 hrs per day.

So far this year, these companies have taken up office space spanning 10,000 sq m (107,640 sq ft) to 100,000 sq m (1.07 million sq ft), noted JLL’s Managing Director for South China Jex Ng.

“Owners who wish to attract new-economy companies should consider providing facilities that can stimulate the creativity of employees and provide catering services in the work space,” shared Ng, adding that office lessors should also be willing to offer flexible leasing terms as demanded by new-economy companies.

For instance, a large internet company recently leased a fully furnished office space measuring 10,000 sq m for only 1 year as it intends to hire an additional 1,000 workers on a short-term basis. Apart from the short lease, the lessee also asked the property owner to provide a canteen spanning 1,300 sq m.

With stiff competition due to the record vacancy level, many office landlords have no choice but to give in to tenants’ demands.

“Many [office lessors] have adopted more flexible leasing approaches, including lowering entry requirements, executing pre-leasing plans earlier, adjusting rental levels and offering higher agency commission incentives,” said Cushman & Wakefield’s Research Head for South China and West China Zhang Xiaoduan.

Wong pointed out that new economy companies don’t “necessarily have to pay high rents to secure space, as the Shenzhen office leasing market is undergoing de-stocking.”

In Q3, average monthly office rents across the special economic zone continued to fall, sliding by 1.75 percent quarter-on-quarter to RMB219.01 psm, noted the property consultancy.

Many of the said firms are on the hunt for office space in Qianhai and Nanshan, where newer office buildings with larger space are available. Notably, Nanshan is the home of tech giants like DJI, ZTE, and Tencent, but there’s a supply glut of office space there.

For 2020, new economy companies are forecasted to lease about 300,000 sq m of office space, or 30 percent of the overall leasing for this year, added Ng.