Companies keen to pay for prime CBD locations(2)

Office space in industrial parks is much cheaper than in the CBD. Beijing CBD rent tallied 336.9 yuan ($55) per square meter in the second quarter, while the Beijing grade-A office rent was 300.8 yuan per square meter per month, according to DTZ.

In Shanghai, grade-A office vacancy rate in the Pudong New Area fell to a record low in the past six years, to approximately 1.2 percent, said a report by Colliers International, a commercial real estate service company.

By the end of June, average rent in the Pudong grade-A office market rose by 3.8 percent year-on-year to approximately 9.1 yuan per square meter per day, primarily supported by the robust increase in Pudong, which continued to outpace Puxi given its limited supply and increasing demand.

The CBD grade-A office market received four new completions with a combined office gross floor area of 202,452 sqm, three of them located in Puxi.

"Demand from corporations relocating from downtown areas as well as those upgrading from lower grade buildings was stimulated by the new completions, with net absorption increasing by 42.7 percent year-on-year in the first half of 2014," said the report.

James Shepherd, executive director and head of research for greater China at Cushman & Wakefield, a privately held commercial real estate services firm, said the peak of office development in Shanghai's CBD will happen between 2015 and 2017 in such large developments as Shanghai Tower, Bund Financial Center, Xujiahui Center and Pudong Financial Plaza.

"It will likely be a winner-take-all market, with good projects having high pre-commitment rates, while poor projects struggle to lease at all. Demand for Shanghai Tower (China's tallest building and the world's second-tallest) is likely to be strongest from domestic companies," said Shepherd.

Looking at South China, Guangzhou, capital of Guangdong province, demand for grade-A offices also increased in the second quarter of the year, following government policies to boost economy and increase investment in finance and technology.

Several big transactions, especially by finance, securities and high-tech companies, were reported in the second quarter in Guangzhou, according to Cushman&Wakefield.

The report predicted that the vacancy rate of grade-A offices in Guangzhou will drop to 12 percent by the end of the year as the Pearl River Delta economy has started picking up since the second quarter.

The reduced vacancy rate of grade-A offices in Guangzhou indicates stronger demand from domestic companies, said Ma Weitu, director of JLL South China.

Second-tier cities struggle to find office tenants

The 24-story Seaside Building on Lujiang Avenue in Xiamen's downtown area is attracting few tenants. A total of 10 floors are unoccupied, with four still being completed.

Although the premium office market is in full sway in big cities, second-tier cities in East China registered a high vacancy rate in the first half of this year, according to a report released by Colliers International, a commercial real estate service company.

Xiamen, in Fujian province, had the highest vacancy rate, at 24.1 percent, out of all the cities tracked during the period.

Second-tier cities Suzhou, Hangzhou, Nanjing, Xiamen and Wuhan saw new office buildings go up in the first half of 2014.

But leasing activity slowed in the five cities, while demand continued to be active for high-quality office space with mature business environments.

In several cities, the over-all vacancy rate masked dramatic differences between established areas and emerging ones.

In Xiamen, these figures were 13.9 percent for downtown, such as Lujiang Avenue, and 44.9 percent in Guanyin Mountain.

Offices in the second phase of the International Business Operation Center in Guanyin Mountain had been completed only one month earlier.

One property security guard said offices in the three buildings were rented out three years ago, but no one had moved in.

"The average price for the first phase of the project was 70yuan ($11) to 80yuan per square meter," said a sales manager surnamed Huang.

Hangzhou's average rent remained the highest among the five cities, at 4.7 yuan per square meter per day by the end of the first half of the year, while Xiamen was 1.7 yuan per square meter per day.

"Both domestic and foreign institutional investors remain cautious in light of a huge amount of new supply and the downward pressure on rents in these cities," the report said.