Topics in this section: - China's Greater Bay push to ease Shenzhen's office supply glut - Shenzhen's office stock will surpass Hong Kong's in 2020 - Shenzhen's offices will siphon tenants from Hong Kong - Finance, IT sectors key to Shenzhen office demand - Possible curbs relief key to Bay Area development - Greater Bay Area to cut price gap among cities - Developer appetite for Bay Area becomes more robust - New transport network speeds up farmland development - New territories west likely to attract more residents
This analysis is by Bloomberg Intelligence senior analyst Francis Chan and contributing analysts Patrick Wong and Michael Tam.
China's ambition to turn the Greater Bay Area into an international finance and technology hub will shrink the region's office supply glut over the next decade. A favorable tax structure will attract more talent and drive leasing demand for new offices from CR Land, New World and Kerry in Shenzhen's Qianhai economic zone.
Shenzhen's office stock will surpass Hong Kong's in 2020
Shenzhen's expanding prime office stock is on track to surpass Hong Kong's in 2020, offering cheap options for multinational corporations to expand their presence in southern China. About 2.4 million square meters of office floor area will be completed in Shenzhen in 2019, with another 1.3 million sqm expected to come to market in 2020. Shenzhen's estimated prime office stock will soar to more than 9.5 million sqm in 2020, surpassing Hong Kong's by 14%. Shenzhen's real GDP rose 7.6% year-over-year in 1Q, compared to Hong Kong's 0.6% growth during the same period.
Shenzhen's offices will siphon tenants from Hong Kong
Shenzhen's copious office supply will allow it to offer affordable spaces for business, positioning it to woo tenants fleeing Hong Kong's high rents and smaller spaces. Most new supply will be in the Qianhai and Nanshan districts. Average monthly office rent in Shenzhen was 233 yuan a square meter as of 1Q, 68% lower than Hong Kong's comparable rate, according to real estate consultancy Colliers International.
Major cities in mainland China will continue to attract multinational corporations to set up their Asia headquarters. Adidas relocated its Asia headquarters to Shanghai from Hong Kong last year, taking up the majority of office space at Sun Hung Kai's Shanghai Two ITC in Xujiahui.
Finance, IT sectors key to Shenzhen office demand
Robust office demand in Shenzhen from the finance and information technology sectors will reduce the risk of significant rental decline, despite ample new supply over the next few years. Average monthly office rents in the city rose 2.7% year-over-year to 237 yuan a sqm, 28% cheaper than in Beijing and 25% below Shanghai levels. The relatively low office rental in Qianhai at about 150 yuan a sqm should continue to attract more companies to set up offices.
Qianhai was established in 2010 as an experimental business zone for better interaction between China and Hong Kong in the financial, logistics and IT services sectors. Various incentives and preferential finance policies are provided for foreign investment.
Possible curbs relief key to Bay Area development
This analysis is by Bloomberg Intelligence senior analyst Francis Chan and contributing analysts Patrick Wong and Kristy Hung.
Zhongshan's latest easing of home-purchase restrictions may set the tone for other Greater Bay cities to do likewise, in a bid to prompt more people to live and work in the Guangdong province. The change will allow residents from Hong Kong, Taipei, and Macau to purchase one housing unit after providing six months of social security and tax proof, compared to five years needed for Shenzhen, Guangzhou and Zhuhai.
The development of new transportation networks and improving quality of health-care services could also help attract more talent to work in mainland cities in the Greater Bay Area.
Greater Bay Area to cut price gap among cities
Favorable economic policies and a tech-industry push are set to boost population inflow and economic growth in the Greater Bay Area, a key catalyst for stronger housing demand. Home-prices in satellite cities such as Dongguan and Zhongshan will have room to grow, by capturing spillover demand from home buyers priced out of the core cities such as Hong Kong and Shenzhen. Improving transport connectivity and stronger economic collaboration between core and satellite cities should reduce home-price gaps.
Average primary home prices in Zhongshan and Foshan surged 40% and 26% year-over-year in May respectively, according to data from CRIC. Hong Kong has the highest home prices in the region, at 204,517 yuan a sqm, compared to 8,060-13,738 yuan for neighboring cities such as Zhaoqing, Jiangmen, Huizhou, Zhongshan and Foshan.
Developer appetite for Bay Area becomes more robust
Developers are likely to keep pushing into the Greater Bay Area to capitalize on rapid economic development and robust home demand in the next few years. The central government expects the combined economic strength of the region's municipalities to rise substantially by 2022 as stated in its latest outline development plan for the Bay Area, which could herald higher population and home prices. This should further stoke developers' enthusiasm for boosting their land banks over the next few years.
Longfor has recently acquired its first projects in Dongguan and Zhongshan, giving the developer exposure to a total of seven cities in the Bay Area in addition to Zhuhai, Foshan, Guangzhou, Shenzhen and Hong Kong. CR Land made its maiden land purchases in Jiangmen and Zhaoqing for 1.3 billion yuan in 2H18.
New transport network speeds up farmland development
This analysis is by Bloomberg Intelligence senior analyst Francis Chan and contributing analysts Patrick Wong and Denise Wong.
Major Hong Kong developers such as Henderson Land that have farmland awaiting development could benefit from infrastructure improvement in the city's New Territories West region. The recent completion of Hong Kong-Zhuhai-Macau Bridge, the upcoming Tuen Mun-Chek Lap Kok Link to be built in 2020 and the proposed Western Express Link connecting Hung Shui Kiu to Shenzhen will significantly reduce the traveling time from the New Territories West to other cities in the Greater Bay Area.
Henderson Land holds 45.6 million sq ft of farmland in Hong Kong, the largest among major developers.
New territories west likely to attract more residents
Sky-high home prices in Hong Kong's urban areas may portend strong demand for homes in rural areas featuring lower home prices. Demand for homes in the city's New Territories West region will continue to surge, as robust business development in Shenzhen, particularly the Qianhai economic zone, will create desirable jobs in the region. The region's close proximity to the Shenzhen Bay and improving transportation connectivity will encourage Hong Kong residents to work in Shenzhen.
Sun Hung Kai Properties has most exposure to residential development among all major developers in the New Territories West with over 14,000 residential units due for sale in the next five years. Others, such as Evergrande, Vanke, Henderson Land, New World Development, Sino Land and China Overseas Land also have projects in the area.
