Office vacancies fell in Shanghai in the third quarter as low rental levels sparked a resurgence in demand, says CB Richard Ellis. Vacancies fell to 44.7 per cent in Puxi, from 48.2 per cent in the previous quarter, and to 48.6 per cent in Pudong, from 53.6 per cent. Third-quarter take-up was more than 194,000 square metres as occupiers moved aggressively to take advantage of the soft market conditions, the consultant said. Although Shanghai office rents remained in decline, the rate was slowing, it said. The steady increase in demand for quality office facilities was attributable partly to the low rental levels. At the end of the third quarter, Shanghai's total office stock amounted to 4.16 million sq m. CB Richard Ellis said the average net asking rental for office space in Puxi was US$18.13 per sq m per month, a drop of 4.6 per cent from the previous quarter. Pudong's average rental was $12.51 per sq m, down 4.5 per cent. Many developers of commercial buildings originally approved for domestic sale had paid supplementary land premiums to convert all or part of their projects into styles to draw overseas buyers. This had put pressure on prices. Asking prices for prime offices in Puxi fell 4.1 per cent in the quarter, dropping through the psychological barrier of $2,000 per sq m to rest at $1,948 per sq m. Asking prices in Pudong dropped 3.7 per cent to $1,636 per sq m. Office rentals and prices also continued to fall in Beijing, where completions due in the next six months were expected to worsen the oversupply situation. CB Richard Ellis said completions in the third quarter amounted to 335,000 sq m of office space. Other large projects due to be completed this year or early next year include the first phase of Oriental Plaza in East Changan Avenue and the Cosco Building on West Changan. CB Richard Ellis expects another peak in prime office completions in Beijing in the next few months, with 420,000 sq m coming on to the market in the fourth quarter this year and 330,000 sq m due in the first quarter next year. This would exacerbate the supply-demand imbalance, it said. Reversing the trend for downsizing by overseas companies, demand for office space by mainland corporations had grown, though it remained constrained by their inability to afford rents of high-quality space. Average asking rent for offices in Beijing was $26.2 per sq m in the third quarter, down 7.2 per cent from the previous quarter. The average gross asking price for offices in Beijing was $2,630 per sq m, a decline of 1.2 per cent from the second quarter. Gross yield on investment remained flat at 7.9 per cent. Prime office vacancy rates in Beijing stayed at 33.5 per cent, or up 0.5 percentage point from the previous quarter. Meanwhile, Beijing's overseas residential leasing market continued to consolidate but falling rents had stimulated transactions and reduced residential vacancy levels. CB Richard Ellis said rents for overseas-sale apartments fell 11.5 per cent in the quarter, with vacancy rates falling 4.6 per cent. Average rent for luxury villas declined 9.5 per cent. Rents for serviced flats fell 9.7 per cent while vacancies rose 7.3 per cent. In Shanghai, rentals for overseas-sale flats fell 5.5 per cent to $13.03 per sq m per month. Asking prices for medium-quality overseas-sale flats were about $1,606 per sq m, down 1.1 per cent. Rentals for villas in Shanghai slipped 4.2 per cent to $22.39 per sq m. The only area in which rentals for overseas-sale villas remained resilient was Pudong, where rents were unchanged at $21.90 per sq m. Average rent for serviced flats dropped 7.7 per cent to $19.72 per sq m on increased competition. CB Richard Ellis said central government policies promulgated recently to speed absorption of residential units held vacant by developers had impacted mainly on sales take-up in the domestic commodity housing market. It had no recognisable impact on the overseas housing, which was primarily driven by leasing demand, it said.