China’s overall economic growth for 2019 is expected to slow down mainly due to headwind caused by US-China trade tensions and slower domestic credit growth. Despite of this, Shenzhen, which has been likened to the country’s Silicon Valley located in south China, is anticipated to achieve a better economic performance. High tech, financial services and culture-related businesses are to lead growth and drive the city’s economy.

Shenzhen has been a magnet for socio-economic experiment and technological innovation since economic reform in 1980s. Particularly, Shenzhen’s R&D capacity increased significantly over the decade. By 2017, R&D spending accounted for around 4% of the city’s overall GDP, a proportion comparable to that achieved in tech-oriented countries such as Israel and Finland. Moreover, it is worth nothing that China’s Central Government linked Hong Kong, Macau and 9 Pearl River Delta cities including Shenzhen into an integrated economic hub in 2017, namely Greater Bay Area (GBA). It is no doubt that a historic technological sea change in the GBA is on the horizon. This will likely see the area play a pivotal role in leading China towards its new services and innovation-led growth model.

Map of Greater Bay Area
Source: JLL

Indeed, technology and the prosperity of Shenzhen’s office market are interwoven interestingly.

Shenzhen has evolved into the third largest office market in Mainland China in just 15 years. Over the period, Grade A office stock has grown by eight times to around 7 million sqm at the end of 2018. Annual net absorption has jumped by six times during 2005-2018. Over the 15-year period, rents have soared by 243% to a GFA-based level of RMB 265 per sqm per month, the highest after Beijing and Shanghai.

The tech industry is among the most active ones exploring expansion options in the Shenzhen office market. Demand for office expansion is supported by the growth of existing sectors and emergence of new sectors. New businesses proliferate and many companies keep expanding and multiply their employee numbers. This results in a surging need for larger, more standard office environments.

Technology will shift more innovative business activities from business park to Grade A office buildings, and it will make the typical workplace more productive and collaborative. Instead of flooding the office market, the huge upcoming supply will well satisfy a range of space needs, such as upgrading, expansion and relocation.

In the upcoming white paper about Shenzhen tech industry and its impact on office market, which is to be launched in January 2019, we will discuss the underlying engines of demand, as well as potential for continued growth. Moreover, we will answer the question whether demand for Grade A office is strong enough to take up most of the future space. The paper will also present challenges for businesses looking for space to lease or buy, and opportunities for landlords and investors.

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