China property

Why companies are turning away from offices in Shanghai’s main business areas

PUBLISHED : Tuesday, 28 November, 2017, 1:19pm
UPDATED : Tuesday, 28 November, 2017, 7:41pm

A growing number of companies in Shanghai are considering relocating to offices away from the central business areas, where they can pay up to 40 per cent less in rent.

The city’s “non-CBD” office market is booming as firms increasingly choose to base themselves in “decentralised” business areas that enjoy good transport links and local amenities.

In a survey of 196 companies and institutions carried out by property services firm JLL, 23 per cent of respondents expressed a “strong interest” in relocating to decentralised business areas.

Shanghai is set to overtake Hong Kong as China’s biggest office market in terms of total supply of space in 2020.

JLL forecasts that the amount of Grade A office space in Shanghai’s decentralised office blocks will jump from 5.1 million square metres now to about 9 million square metres in 2020. This includes areas like the World Expo site, Yanggao Road and Shanghai Railway Station.

The amount of Grade A office space in Shanghai’s central business districts (CBDs) is forecast to increase by 1.4 million sq m to 7.5 million sq m in the same period.

Decentralised commercial areas will support the future development of Shanghai
Eddie Ng, managing director, JLL

At present, landlords of office buildings in the emerging commercial areas are charging rents at a 40 per cent discount to their counterparts in the city’s busiest districts such as the People’s Square and Lujiazui finance zone.

“An increasing number of multinational companies are seriously considering moving to office buildings in the decentralised districts,” said Daniel Yao, head of JLL’s research in East China. “In the next few years, non-CBD offices will be a new driver for the office market in Shanghai.”

JLL defines Nanjing Road West, Xintiandi on Huaihai Road, People’s Square, Lujiazui and Gubei as the established CBD areas.

Yao said about 60 per cent of take-up of the city’s Grade A office space in the last year came from the “decentralised” market.

In the first half of this year, the average annual rent for office space in Shanghai stood at US$680 per square metre, versus US$1,166 in Hong Kong, according to JLL.

Shanghai’s rise as a financial and shipping centre, and more recently its ambitions of becoming a global innovation hub has led to accelerated construction of office space. This fresh supply of office blocks away from the central areas has kept rents in check.

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“Decentralised commercial areas will support the future development of Shanghai, providing the space necessary for fast urban development and becoming new engines for urban growth,” said Eddie Ng, a managing director of JLL.