Size of Shanghai’s office market set to surpass Hong Kong by 2020

The gap in office rents between Hong Kong and Shanghai will likely narrow at a moderate pace, but HK’s office space will continue to be more expensive, says JLL

PUBLISHED : Tuesday, 23 May, 2017, 11:52am
UPDATED : Tuesday, 23 May, 2017, 7:55pm

A ramping-up in the construction of Grade-A office buildings in Shanghai is set to help the mainland’s commercial capital overtake Hong Kong in size to become greater China’s biggest office market by 2020, according to new research by global property service firm JLL.

Shanghai’s Grade-A office market will hit 11 million square metres by 2020, beating Hong Kong’s 9.2 million sq m of stock by that time.

The gap in office rents between Hong Kong and Shanghai will likely narrow at a moderate pace, but Hong Kong’s office space will continue to be more expensive, it added.

At present, average annual rents for Grade-A office in Shanghai stands at about US$680 per sq m, compared to Hong Kong’s US$1,166.

“The rapid expansion of the office market is the latest example that symbolises the rise of Shanghai,” said Joe Zhou, JLL’s head of research in China, “and demand for office space by domestic businesses has been the major driving force for the market.”

Over the next three years, around 4.4 million sq m of new supply of office space will come onto the market, the majority of which will be outside the central business districts. In Hong Kong, less than 1 million sq m of office space will be added by 2020.

Shanghai has been driving hard to turn itself into an international elite city with ambitions of becoming a global financial and shipping centre.

In the past few years, the municipality unveiled a series of attempts to bolster its technology sector, for instance, hoping to attract more companies conducting technological innovations in the city.

Internet giants and technology start-ups around the country looking to secure a foothold in the mainland’s most-developed metropolis will increase demand for new office space, Zhou said.

Foreign businesses, too, currently account for about 30 to 40 per cent of fresh demand.

Beijing’s “Internet Plus” strategy – a national policy to sustain the growth of the world’s second-largest economy – has been spurring the development of online businesses, encompassing e-commerce, financial technology, or fintech, and internet-based service providers.

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“Besides being on the crest of a wave of fresh appetite for office space, tech players are also pushing the envelope on workplace design, and real estate portfolio strategies,” added James Allan, JLL’s head of markets in Shanghai.

Colliers International has said in a separate report, meanwhile, that multinational companies have predominantly been attracted especially by flexible workspace, because it allows them to align with innovation and attract better talent.

That flexibility could in turn lead to an average 25 per cent cost savings on rent, the property service firm added.

JLL predicts an increasing number of price-sensitive tenants are also expected to turn towards emerging business areas outside the traditional CBDs.

In its new research, the firm said that fringe districts such as the Shanghai Railway Station, the North Bund and Qiantan already offer convenient access to the core CBD areas and will continue to flourish in coming years.

Plans by The Shanghai Stock Exchange and China Financial Futures Exchange to relocate to Yanggao Road, about 4 kilometres from the bustling Lujiazui finance and trade zone in Pudong, will also add lustre to that area, JLL said.

“City commercial banks and other price-sensitive financial institutions will move their Shanghai-based business centres to non-CBD areas in the coming years,” said Zhou.

“But overall, office rents in Shanghai will lag far behind those in Hong Kong.”