The commercial real estate market in China's key cities has begun to feel the pinch from the global financial slowdown as demand for office space by a number of multinational companies softened in the third quarter.

According to Colliers, an international property service provider, the average vacancy rate in Guangzhou edged up slightly to 15.1 percent during the third quarter, and the average Grade A office rent fell 1.5 percent quater-over-quarter to US$21.11 per sq m per month.

Office demand in Shanghai also slackened in the third quarter, with a 9.8 percent hike in vacancies. Rental of prime office space also halted its advance, remaining flat from July through September at US$43 per sq m.

"Global economic conditions have dampened MNCs' expansion plans and we saw rentals drop 7 percent in Pudong over the last quarter," said Anthony Couse, managing director for Jones Lang LaSalle Shanghai.

Rents for Beijing's office market remain comparatively firm. With a decrease in the number of newly available rentals combined with the fact that more tenants chose to renew their leases, the overall vacancy of prime office buildings edged down slightly by one percentage point to 13.6 percent in the third quarter. Meanwhile, the average rent for Grade A office space edged up by 4.5 percent quarter-over-quarter to US$39.79 per sq m, per month.

Activity in the investment market remained vibrant in Beijing: Five office properties were acquired during the third quarter, including SK's purchase of Capital Tower for 3.4 billion yuan.

"International investors are still quite interested in China's property market, and they have much more bargaining power now," said David Watt, chairman of DTZ (North Asia).

Though the current global economic downturn may reduce demand, China continues to be a relatively attractive destination, with many corporations still planning to grow their operations, albeit at a reduced pace.

According to a recent Jones Lang LaSalle survey on the impact of the financial crisis concerning the state of demand for commercial property in Asia, four-fifths of the companies surveyed said they are favoring their Asian units over their operations based in other regions.

Also, almost 70 percent of the respondents intend to increase the scale of their activities in the region, although 44 percent indicated that their operational growth in the first half of 2009 would likely be less than they had originally forecast.

Despite a declining number of companies looking to grow their operations, China and India are two nations that were sighted for significant growth in 2008, and will retain their forecasted leadership status for 2009.

"The survey also revealed that depending on how the global macroeconomic environment shapes up, plans for operational growth could change dramatically overnight," said John Forrest, CEO of corporate solutions at Jones Lang LaSalle (Asia Pacific).

(China Daily November 21, 2008)