Pace of absorption key to China's Grade A office leasing market assessment
Landlords need to consider more than stock and vacancy levels when assessing the grade A office leasing market
When talking about the future viability of China's grade A office leasing market, from a landlord's perspective, there is a temptation to pay exclusive attention to two key market measuring metrics - what is the present vacancy level in a given market and what percentage does total grade A stock now actively under construction constitute as a percentage of the existing amount of grade A office floor area available for leasing in a given city.
However, another crucial element that is often not adequately considered - possibly because it is difficult to calculate - is the pace of absorption. Apart from present vacancy level and percentage of increase in office stock as compared with existing base, the third key metric that must be assessed to determine the viability of a given grade A office leasing market is the pace of leasing absorption of new office properties.
Undertaking in-depth assessment of absorption time for newly released office properties across China's major office markets is one of the unique features of the China Business Office Building Index that was released by the China Real Estate Association with data and technical support from DTZ Research, and was a major factor contributing to the precision of the rankings of the viability of the individual office leasing markets.
Specifically, the most indicative metric in taking the "pulse" of a given office market is to track the number of months that new grade A office buildings require to achieve 80 per cent occupancy on average.
The reason why 80 per cent is such a critical point, in the leasing of any given office building, is because it is generally only after a building has attained this level of occupancy that a landlord's position becomes sufficiently strong to consider hardening the leasing terms for the remaining unlet space.
Properties in first-tier cities could achieve over 93 per cent occupancy within two years
In a survey conducted by DTZ Research this year, which examined the rate of take-up of grade A office properties over a longer time horizon, it was observed that properties in first-tier cities could achieve over 93 per cent occupancy within two years of completion.
