(Yicai Global) May 18 -- Against a backdrop of no new supply, the vacancy rate of Shenzhen’s top tier office buildings narrowed a little in the first quarter of the year, mainly driven by an uptick in demand from businesses in sectors such as information technology, finance, and transportation.

The vacancy rate of Grade A office space in Shenzhen, a coastal tech hub in China’s southern Guangdong province, fell to 24.4 percent in the three months ended March 31, down from 24.9 percent in the previous quarter, according to the latest data from the UK real estate services provider Savills.

The city’s Futian, Nanshan and Luohu districts all logged quarter-on-quarter declines, with Nanshan, which has the highest vacancy rate, recording the largest decrease of 0.8 percentage point. Only Bao’an district saw an increase.

Still, the overall recovery in Shenzhen’s Grade A office market was still sluggish. Savills data showed that net absorption of top tier office space in the city, which borders Hong Kong, fell 55 percent over the previous quarter to 54,000 square meters in the first quarter, just 31.5 percent of the quarterly average over the past five years.

Property owners also continued to cut rents in response to competition. Savills’ Grade A office rental index for Shenzhen fell 0.4 percent from the final quarter of last year and 3.8 percent from the same period of 2022, with average monthly rents declining to CNY176 (USD25) per sqm.

After the complete reopening of the border between Shenzhen and Hong Kong, Hong Kong-funded and foreign firms have become relatively more active in the neighbouring city’s Grade A office market, Alfred Li, head of Jones Lang LaSalle’s office leasing advisory in Shenzhen, pointed out. That contributed to Shenzhen’s better first-quarter office vacancy rate, he said.

The future availability of new projects in the market will continue the downward trend in average rents in Shenzhen’s Grade A office market, said Carlby Xie, head of Savills’ market research department for southern China. But he also said that with the improvement in economic and market activity, the decline in rents may slow.

As per Savills data, Shenzhen will have six new property projects in this quarter, bringing about 410,000 sqm of new Grade A office space to the market. As a result, a total of about 1.41 million sqm of new space is expected this year.

Editors: Tang Shihua, Peter Thomas