Demand soars for space
Substantial expansion by international and domestic corporations has pushed up rents for grade-A office space in Puxi in Shanghai. It has also driven the vacancy rate to its lowest level since 2009, say international real estate consultants.
The vacancy rate of all grade-A office buildings in Puxi's central business district (CBD) stood at 4.9 per cent in the first quarter of this year, down 2 per cent from the fourth quarter of last year, says Anthony Couse, managing director of Jones Lang LaSalle Shanghai. 'The 4.9 per cent vacancy is the lowest in the past two years,' he says. 'The net take-up of office space was 43,000 square metres, compared with 24,000 square metres in the same period last year.'
The CBD in Puxi covers Nanjing West Road, Huaihai Road and People's Square. The total area of grade-A offices available in Puxi is about 2 million square metres this year. An additional 282,000 square metres of office space is expected to become available in Puxi next year.
The average rent for all grade-A offices in Puxi's CBD gained 8.8 per cent to 8.2 yuan (HK$9.8) per square metre per day in the first quarter from the fourth quarter of last year, while rent in premium grade-A buildings was up 11 per cent to 9.7 yuan per square metre per day. The sharp increases are attributable to the strong demand and limited new supply in the district. The submarkets in Puxi are performing at different levels, Couse adds. 'The gap in rents between grade-A and premium grade-A buildings is widening,' he says. 'Jing'an and Luwan are the best-performing districts in Puxi. Average rent in grade-A buildings in Jing'an is 9.4 yuan and that for premium grade-A buildings is 10.4 yuan. In Luwan, it is 8.8 yuan for grade-A buildings and 10.7 yuan for premium grade-A.
'Compared with 2010, rents of grade-A offices in Puxi have increased between 8 per cent and 10 per cent already. It is likely we will see an average 20 per cent annual increase for 2011. For certain premium grade-A buildings, the increase can be in 20 to 25 per cent.'
Premium grade-A buildings in Puxi include Wheelock Square, Plaza 66, Corporate Avenue and Shanghai International Commerce Centre. 'Almost all premium grade-A buildings in Puxi are 100 per cent occupied,' Couse says. 'Occupancy at Plaza 66, K Wah Center and Corporate Avenue is 99 per cent, while Park Place is 98 per cent.'
The vacancy rate of all grade-A office spaces in the entire Shanghai market is 5.6 per cent, while the rate in Pudong district is 6.5 per cent, according to figures from Jones Lang LaSalle. Puxi's CBD has a mixture of multinational corporations and domestic enterprises across all industries, while Pudong has a concentration of corporations in the banking and finance sector because the municipal government has offered tax concession incentives and special licensing arrangements for companies establishing operations in the district.
Michael Stacy, senior director of office services at CB Richard Ellis in Shanghai, believes many companies that were in negotiations over rents and spaces most of last year eventually finalised leases. 'In the second half of 2009, many multinationals began to see that China had not been affected by the slowdown. It was a good opportunity for them to lock in rentals for the next five years because there were many great new developments. A lot of negotiations ensued and towards the end of last year companies started executing the leases, securing the rents or they would increase.' The strong basic fundamentals on the mainland are driving growth in many companies.
'They are back in growth mode, increasing headcount and expanding operations,' Couse says. 'Companies across all sectors are engaged in aggressive expansion. It is similar to the situation in 2006 and 2007. Although a lot of companies maintain their head offices in Beijing, where central policies are made, they are expanding their presence in Shanghai. The central government wants to develop Shanghai into the country's financial and shipping hub.'
Multinationals across all sectors are driving the leasing activity in the premium grade-A market, Stacy says. 'A lot of international retailers for consumer goods, such as Coach, Burberry and Apple are expanding their offices,' he adds. 'Many of their shops are situated on Nanjing West Road and, as their retail business is booming, they expand their offices to keep up with the growth.'
Multinationals locate their offices in premium grade-A buildings because of the convenient location and that their provisions and specifications are comparable to the super grade-A buildings in Hong Kong's CBD. 'Many premium grade-A buildings were developed by Hong Kong developers,' Couse says.
New office buildings to be completed and available for leasing in Puxi this year include the ICC and Eco City. 'ICC has a total office floor area of 62,000 square metres. It has just started leasing and 65 per cent of its office space is already committed,' Couse says. 'Eco City has a total of 67,000 square metres of office space, of which 35 per cent has been leased.'