Shanghai office boom continues as foreign and domestic companies take up record office space
Strong demand for prime offices in the Pudong and Puxi central business districts
Shanghai’s office leasing net absorption hit a record high last year as demand from both domestic and foreign companies rose.
The strong demand resulted in rental growth in both the Pudong and Puxi central business districts.
But as a lot of supply will be coming online rentals are not expected to see significant growth in the city this year, according to property consultants.
Domestic as well as multinational companies in the technology, retail, professional services and financial services sectors actively sought office expansion opportunities in both the Pudong and Puxi central business districts last year, according to Anthony Couse, managing director for JLL East China.
Overall net absorption in 2015 reached a historical high of about 1.45 million square metres, almost doubling the 2014 figure.
“Demand continued to be strong towards the year-end, and we have witnessed strong leasing performance in a number of recently completed projects in Pudong as well as core locations in Puxi,” said James Allan, Head of Markets for JLL Shanghai.
For example, Ping An leased 5,000 sq meters in the HSBC Building.
China’s mainland cities are facing a glut of office completion this year but analysts said some cities such as Shanghai and Shenzhen, spurred by economic activities in their free trade zones, managed to attract strong demand.
According to Colliers. China’s office real estate market continued to expand rapidly in 2015 in most major cities, with 57 new projects completed in 14 major cities during the year. However, the market’s performance diverged noticeably in 2015, with the largest cities achieving rental growth and low vacancy rates while many second-tier cities faced concerns about oversupply.
JLL said in its report released Friday that strong leasing momentum continued to drive rental growth in both the Pudong and Puxi central business districts. Pudong Grade A rents increased by 2.9 per cent quarter-on-quarter to 11.1 yuan per sq metre per day, while Puxi Grade A rents rose by 2.5 per cent quarter-on-quarter to 9.7 yuan per sq metre per day.
Looking forward, Colliers said nearly 1 million sq metre of office gross floor area is scheduled to complete in Shanghai’s CBDs in 2016.
“This is expected to exceed demand significantly, based on average annual net absorption levels in recent years, and will lead to a surge in the overall vacancy rate,” Colliers said in a report.
At the same time, decentralised markets will also see a large amount of new supply, and consequently the average rent for the city’s Central Business District Grade A office property market is expected to remain relatively flat in 2016.