Most North Americans will stumble over the pronunciation, but Guangzhou, the third largest city in China, will be in the headlines regularly before the year is out. The city of 13 million residents is ushering in the biggest commercial real estate surge in its 6000-year history.Despite current office vacancy of 12 percent that could balloon to 25 percent, big-name developers like Guangzhou R&F Properties Co. and Poly Real Estate Group Co., plan to add 18.3 million square feet? (1.7 million square meters) of Class A space to the city's bulging inventory this year.
The activity is unprecedented in this historic trading hub. It's also a gamble with odds, some say, on which even Las Vegas bookmakers would not bet. There are several reasons for such gloom. Foremost? is China's current economy. It's not as great as it was seven years ago.
China is targeting a gross domestic product growth in 2012 of 7.5 percent, down from 8 percent in 2005.? Last week, China reported its biggest trade deficit in 22 years, along with the weakest January-February factory-production gain since 2009.? Retail sales also trailed estimates of several economic yardsticks.
All bad news for the country as a whole and for Guangzhou specifically.
But the ever-optimistic developer brotherhood points to the thousands of construction jobs the new projects will create .and the new businesses that could surface to service the expected 120,000 workers in the new space.
Cushman & Wakefield data show that about 90 percent of the new space will be built in Zhujiang Xincheng, a zone twice the size of London that Guangzhou's government earmarked as its new central business district almost a decade ago.? Guangzhou R&F already has completed five office projects in the area.
Despite the calculated risks ahead in quadrupling the city's prime office space sector, Guangzhou still has much going for it.? The city, historically known as Canton or Kwangchow, hosts the annual China Import and Export Fair every April -a super bowl-like event among the country's business communities.
Preparing for near-future grow, Guangzhou's government in 2003 transformed
the Zhujiang Xincheng district into a financial center rivaling Shanghai and Shenzhen. That was followed two years later by a 200 billion Yuan (US $32 billion) plan to upgrade the whole city's infrastructure.
Although banks have been slow to accept this zone as a branch site, export and domestic- industrial companies have been drawn to the district. The 6.6-square-kilometre district features the regional headquarters of China Mobile, the world's biggest phone carrier by users; General Motors, the largest foreign automaker in China; and Tesco, Britain's biggest retailer.
Even with the new office supply, rents in top tier buildings are expected to rise from strong demand by tenants.
Average monthly rent at Zhujiang Xincheng was 279 Yuan ($44) a square meter in the fourth quarter, compared with 255 Yuan ($40) a square meter at Tianhe, Guangzhou's former central business district. That compares with 507 Yuan ($80) in Beijing and 414 Yuan ($66) in Shanghai. One square meter equals 10.76 square feet.
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