High-end manufacturers expand in China’s office market

High-end manufacturers are potential catalyst for demand growth in China's major tier 2 office markets.

April 23, 2024

Despite an overall soft leasing momentum in China’s office market during 2023, increased leasing activities from the high-end manufacturing[1] sector was observed in major Tier 2 cities such as Hangzhou, Chengdu and Wuhan. In each of these cities, high-end manufacturers accounted for a higher percentage of total leasing transactions compared to 2022.

Furthermore, there was a notable increase in large-scale leasing transactions within the high-end manufacturing sector in 2023. Notably, prominent companies within the sector proactively expanded their presence in Tier 2 office markets by securing large lease agreements. For instance, a leading NEV company leased over 50,000 sqm of Grade A office space in Hangzhou, marking it the city’s largest transaction in 2023.

In Wuhan, clustered industrial advantages in sectors like network technology has been attracting big transactions. Most notably, a national level "Little Giants[2]" company which specialises in network technology leased more than 20,000 sqm in Wuhan’s Optics Valley. In Chengdu, a well-known domestic cloud service company leased over 10,000 sqm.

Compared to tenants from traditional manufacturing, tenants from the high-end manufacturing sector exhibited a greater demand for larger office spaces. This was due to the sector’s need for longer industrial chains and the production of higher value-added products. The tenant-favourable market conditions and low rental in recent years, further encouraged them to upgrade, expand, or consolidate existing office spaces. Overall, more than 25% of the recorded transactions of high-end manufacturing in these three cities were upgrades and expansions.

Looking ahead, China will continue the transition towards high-quality development, with an emphasis on promoting the high-end manufacturing sector to facilitate the country's industrial development. This will, in turn, enhance the core competitiveness of the manufacturing industry as highlighted by the country’s superior 14th Five-Year Plan.

In the “Two Sessions” meeting held in March 2024, China’s government emphasised the use of the “new quality productive forces” to foster high-quality productivity development. Therefore, the high-end manufacturing sector should continue to benefit from ongoing policy support and consistent funding sources for business growth. As such, this sector is anticipated to maintain leasing momentum in the office markets of China’s major Tier 2 cities.

[1] The high-end manufacturing industry is characterized by substantial research and development (R&D) investments, higher product value, and lower resource consumption. Key sectors include pharmaceutical manufacturing, aerospace and equipment manufacturing, and electronic and information equipment manufacturing, etc.
[2] These are the top performers among specialized, high-end and innovation-driven SMEs that provide distinctive products or services. These SMEs are distinguished by their focus on niche markets, strong innovation capabilities, large market share, and strengths in core technologies, which enable them to have outstanding achievements.