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China Property

P2P exodus from Shanghai city centre leaving huge glut in office space

Savills forecasts vacancy rate of the city’s grade-A office buildings to hit 13.3 per cent in 2017

PUBLISHED : Tuesday, 26 July, 2016, 6:30pm
UPDATED : Tuesday, 26 July, 2016, 10:50pm

Shanghai will see a surge in empty office space over the next 18 months, as a large number of peer-to-peer (P2P) lenders exit the market, pushingvacancy levels to new peaks, according to leading property agents.

“The widespread retreat by P2P lending sector tenants has pushed up vacancy rates,” said Cary Zheng, senior director at estate agency Savills Shanghai Commercial.

“The market is facing pressure, as it is already oversupplied, and abundant new supply will arrive in the second half of this year and in 2017,” he said.

China Economic Weekly recently reported that more than 10 per cent of the finance industry’s new demand for office space in Shanghai came from the P2P sector last year.

The market is facing pressure, as it is already oversupplied, and abundant new supply will arrive in the second half of this year and in 2017
Cary Zheng, senior director at estate agency at Savills Shanghai Commercial

The government had previously hoped the sector could be seen as a shining example of innovation-led financial services development in China, leading many companies to choose to locate in some of Shanghai’s most prestigious office sites.

But a recent nationwide crackdown on fraud in the sector has led to a massive number of tenancies being surrendered.

In the latest move, Zhongminxin Wealth Management, which occupied the Shanghai World Financial Center’s 72th floor, shut down earlier this month due to its owner being investigated by police.

David Ji, head of research and consultancy for Greater China at real estate services firm Knight Frank, said officials in Shanghai are now hope to attract other types of financial services companies back into its Central Business District, especially in Lujiazui in Pudong.

But he fears that as many firms in the sector are emerging enterprises, and might not be stable, or long-term, tenants.”

According to fresh figures from property management firm Colliers, the average rent in Shanghai’s CBD grade-A office market dropped by 0.5 per cent in the second quarter to 10.3 yuan per square meter per day, in direct response to an exodus from many prime buildings.

“New supply could reach its highest level since 2009 next year, far beyond demand, and this is actually a bigger concern than P2P,” added Zheng, adding that the Shanghai Tower, completed earlier this year to become China’s tallest building, still has 30 per cent of its space available.

Colliers estimates nearly 1.5 million square meters of new office space will come onto the market in Shanghai’s CBD, this year and next.

While Savills forecasts the vacancy rate of the city’s grade-A office buildings will climb to 8.4 per cent in the second half of the year, from the 7.6 per cent in the first half, and then hit 13.3 per cent in 2017.

Longer term, however, analysts still say they remain positive about office demand, as Shanghai continues its development into a regional finance hub to rival Hong Kong.

Knight Frank’s Ji said more manufacturing companies may still move out, but he is hopeful they will be replaced by the ongoing influx of financial services firms, lured by the centre of the city’s growing image as a hub for the banking and finance industry.

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