What is more, China’s commercial and financial capital is attracting an increasing amount of investment at a time when sentiment in global real estate markets has cooled due to a combination of mounting economic and geopolitical uncertainty and increasing concerns about overpriced assets in a late-cycle environment.

Indeed, preliminary data for the second quarter of this year published by CBRE, another property adviser, last week showed that transaction volumes in China’s commercial property market fell 36 per cent year-on-year. However, investment in offices – the most actively traded assets globally due to their higher liquidity and easier management, attributes that become more important to investors in the late stages of a real estate cycle – still rose 6 per cent year-on-year in the first half of 2019.

More tellingly, Shanghai and Beijing saw their share of commercial property transactions in China increase to 71 per cent in the first half of this year (up from 51 per cent in the corresponding period in 2018) as investors favoured cities they are most familiar with, and which have well-established investment markets.

Shanghai, the leading destination for property investment in China last year, is a prime beneficiary of investors’ more risk-averse stance.

The city’s office sector, which boasts well-established and vibrant decentralised districts akin to those in Hong Kong, is particularly well-placed to profit from key trends in the occupational market stemming from the slowdown in China’s economy.

Two crucial factors explain why Shanghai’s office market is likely to continue to prove resilient.

According to data from Cushman & Wakefield, a real estate adviser, foreign investors accounted for almost half of the investment activity in Shanghai in the first quarter of this year, more than 80 per cent of which was in the office and mixed-use sectors.

In one of several large deals that typify the shift in China’s commercial property investment market towards foreign sources of capital, Singapore’s CapitaLand and US private equity fund AEW teamed up last January to acquire 70 per cent of Pufa Tower, a vintage office building in Shanghai’s Lujiazui district, from HNA Group, the debt-laden mainland conglomerate, for just over US$400 million.

Second, Shanghai’s office market has the advantage of having a large stock of prime office space in noncore locations, providing tenants with much cheaper rental rates and high-specification buildings in proximity to the city’s established central business district.

Over the past decade, Shanghai’s decentralised office stock has swollen to 4.3 million square metres, or roughly 60 per cent of the Grade A space in the city’s central business district, data from Cushman & Wakefield show. Moreover, nearly 80 per cent of new supply is in decentralised areas.

According to Colliers, a property adviser, net take-up – the difference between tenant move-ins and move-outs over a given period – in decentralised districts in the first quarter of this year rose by 161,000 square metres, compared with a drop of 42,000 square metres in the central business district.

To be sure, the gush of new supply in decentralised locations will put more pressure on rents in the coming quarters. However, the strength of relocation demand – including from mid-market tenants, such as technology firms, which are upgrading from Grade B buildings in the central business district to Grade A ones in noncore districts – provides a solid underpinning for leasing activity.

For Shanghai’s liquid and increasingly decentralised office market, adverse conditions for investors and occupiers alike are working in its favour.

Nicholas Spiro is a partner at Lauressa Advisory