Focus on Grade-A Office Properties in Guangzhou

Source: China Daily

Not many people seemed to bother investing in Grade-A office properties last year when the residential sector was filled with speculation frenzy.

Now investors look for growth in office properties with home prices stalled and the stock market falling.

Steadfast relative to the residential market, the lease and sales of Guangzhou's Grade-A office properties have been fairly active with prices staying firm. Sinopec Tower, the latest Grade-A office block situated in Tianhe district and up for sale, has seen large deals worth 5 million yuan to 10 million yuan.

Similarly, office space in Citic Plaza and Metro Plaza has also seen impressive transactions buying up whole-floor units.

For example, recent purchases of office space in Citic Plaza have lifted its average sales price to 30,000 yuan per square meter, a record price in two years and double that of 2001.

Amid global downturn as well as tightened bank lending and dismal local stock markets, commercial property now offers growth potentials for buyout funds and property investors.

Lease-backed properties that guarantee steady rental income are particularly desirable.

By contrast, Grade-A office supply in Guangzhou is scarce for large-sized companies and multinational companies.

Many of the existing tenants are Fortune 500 companies from which rental payments are more secure. Leasing transactions in Tianhe district were particularly active.

According to government figures, by the end of June, the southern city had an office space inventory of 607,700 sq m in terms of gross floor area, comprising 3,692 units in all.

With only two new office blocks in Zhujiang Xincheng having hit the market so far this year, there will be no foreseeable supply afterwards.

Due to this, transaction data confirms that both lease and sales prices of Grade-A office space are on a constant rise.

In the second quarter, monthly rental value averaged 140 yuan per square meter, slightly up 1 per cent on a yearly basis.

Overall vacancy rate was between 22 percent and 25 percent and 35,000 sq m of space has been taken up by new leases.

Most of the newly rented spaces are located in Tianhe CBD and Zhujiang Xincheng.

Apart from Fortune 500 companies, Chinese enterprises are inclined to buy into prime office properties for self-use rather than leasing.

It is likely that domestic demand will fuel the city's office sales market.

The author is deputy managing director of Vigers Asia Pacific Holdings.

(By Raymond Ho)

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Editor: Jessie Hwang