Shanghai's office leasing sector looks to local companies to take up slack
Shanghai's languishing office leasing market is looking to local companies for a boost as foreign financial institutions remain on the sidelines waiting for clear signs that the global economic downturn is coming to an end.
But signs pointed to a continued slide in rentals as new space came on to an oversupplied market already suffering from high vacancy rates, warned analysts.
Lina Wong, the managing director at Colliers International's east and southwest China division, said most of the recent leasing deals were done by local financial institutions seeking to expand their office space. By contrast, just a few deals were done by foreign financial institutions that relocated to new office buildings but with office space remaining the same.
Ningbo Commercial Bank was responsible for one of the biggest leasing deals of the quarter, signing up for 3,000 square metres of space in Aurora Plaza in Lujiazui, while retaining its 8,000 sq metre premises in Novel Plaza in Puxi district.
Local brokerage Western Securities took up an extra 1,500 sq metres in the Shanghai World Financial Centre in Lujiazui, while holding on to its 1,000 sq metre location in Hua Neng Union Tower in the same district.
But deals have so far failed to match the numbers reached in the same period last year. Property consultant DTZ's research shows 61,717 sq metres of negative absorption in the first quarter due to companies surrendering office spaces, compared with a positive take-up of 159,875 sq metres a year ago.
Vincent Luk Fung-siu, the managing director for east China at DTZ, said most leasing inquiries in recent months were from local banks and insurance companies.
'A few foreign financial institutions have downsized their office space as a response to the financial crisis,' Mr Luk said.
Danny Ma, a director of the Greater China research department at consultancy CB Richard Ellis, said foreign institutions were focused on cost cutting in the wake of the financial crisis. 'They have postponed or abandoned expansion plans in the mainland in a bid to control operating costs. Some have abandoned relocation plans altogether and renewed existing leases while others have consolidated office space.'
The vacancy rate for grade A offices in Shanghai increased to 12.5 per cent by the end of the first quarter and Mr Ma expects vacancies will exceed 20 per cent by the end of the year.
He also expects rents in Puxi and Pudong districts will drop a further 12 and 15 per cent respectively by the end of the year after grade A office rents fell 8.8 per cent in the first quarter.
However, Mr Luk said the lack of demand was unlikely to translate into a continued sharp fall in rentals this year due to a decline in new office supply coming on to the market.
