Chongqing Office Sector is Worth a Bet: Looking from an Office Employment Angle

Stephen Chung

Managing Director

Zeppelin Real Estate Analysis Limited

May 2009

When asked what drives office demand, many people would probably answer economic growth, trade growth, investment from multinational corporations, and the like.

Good answers but are somewhat not close enough. Why? Because if these increased economic growth, trade, and investment do not increase employment, and office employment to be exact, the so-called ‘white-collar’ jobs, they will not be much good to increasing office demand.

Furthermore, the grade A office sector does not only require increased office employment, but increased higher-paying office employment. Again why? Because many (and most) of these higher-paying office employment relate to the bigger corporations such as multinationals and publicly listed companies who form the bulk of such grade A office tenants-occupiers and can afford to pay the higher rents demanded by grade A office owners.

Often but not always, these bigger corporations tend to cluster together in a particular district, technically called a CBD (central business district). This in turn explains the typical clustering of grade A office properties in and around a CBD. 

Here we look at the grade A office sector of 9 cities in China, namely Beijing, Shanghai, Guangzhou, Shenzhen, Tianjin, Chongqing, Chengdu, Wuhan, and Hong Kong. We shall seek to gauge which of the 9 office markets, if any, harbors great investment potentials for investors via reviewing their office employment status and potentials. The data comes mostly from DTZ:

A)    Total grade A office stock (m2) and vacancies (%) = In terms of total stock, Hong Kong still leads the pack but Beijing and Shanghai are not far behind. Chongqing has the least stock. Interestingly, it seems the lower the stocks, the higher the vacancies.

B)    Rent per m2 per month jives with the related GDP = Hong Kong still commands the highest rent yet Shanghai is not that far behind. Chongqing and Chengdu are the laggards. Coincidental or otherwise, the higher the rental rates, the higher the related GDP tend to be.

C)    The (rough) number of grade A office workers in each market (city) = we have used an average of *15m2 office space per worker. Using the reported total stock m2, we could estimate the number of workers which each office market may accommodate in total. Furthermore, using the vacancies, we could also calculate the number of office workers whom the market has yet to accommodate. Also, using the city population data, we could roughly estimate the percentage of population working in grade A office properties within a market. The results are shown below:

Based on the above chart, Hong Kong tops the rest with over 5% of the population working in grade A offices. Next are the 4 1^st tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen. The 2^nd tier cities tend to have lower than 1% which may imply good potentials to grow with the lowest being Chongqing.

While Chongqing may not aspire anytime soon to become a global financial center like Hong Kong or the future Shanghai as expected, your humble author finds it difficult to believe that its grade A office workers to population percentage can remain at 0.16% in the long term. 

D)    Using Hong Kong population and GDP as a benchmark, we estimate the ‘supportable’ number of grade A office workers for each market = and we subtract these ‘supportable’ figures from the estimated grade A office workers, thus giving a net figure, be this positive or negative. A positive figure indicates some degree of oversupply concern while a negative figure indicates some degree of undersupply potential. Here are the results:

Summarizing the above, caution is sounded on Beijing, Shanghai, Guangzhou, and Wuhan. Chongqing deserves some investment interest.

*Office space per worker: we have searched the web for a guide yet there seems to be a wide range of possibilities. Hence, we decided to use the one shown based on some of our observed cases and views from practitioners such as real estate agents or architects.

Analyst’s note: while the calculations are not shown, the results above have taken into account the percentage of GDP which tertiary industry in each market occupies. This is because office employment has (mostly) to do with tertiary industry activities. As such, the results have been adjusted to reflect the different tertiary industry contributions to the economy (GDP).

Notes: The article and/or content contained herein are for general reference only and are not meant to substitute for proper professional advice and/or due diligence. The author(s) and Zeppelin, including its staff, associates, consultants, executives and the like do not accept any responsibility or liability for losses, damages, claims and the like arising out of the use or reference to the content contained herein.

 Back to Home  /  Back to Simple to Read Stuff Section