China property

Office rents in Shanghai's Pudong area top those in Puxi, brokers say

The area is overtaking Shanghai's traditional central business district amid increasing demand from financial firms and limited new supply

PUBLISHED : Wednesday, 17 April, 2013, 12:00am
UPDATED : Wednesday, 17 April, 2013, 5:31am

Increased demand for grade-A office space from domestic and foreign financial firms has led rents in Shanghai's Pudong area to exceed those in Puxi, the city's traditional central business district.

In the first quarter of this year, rents in Pudong reached 9.23 yuan (HK$11.50) per square metre per day, compared to 9.04 yuan in Puxi, says property consultancy Knight Frank.

Separate studies by other property consultancies show a similar story.

According to DTZ, grade-A office rents in Pudong (266.86 yuan per square metre per month) in the first quarter surpassed those in Puxi (265.26 yuan) for the first time since the third quarter of last year.

Jones Lang LaSalle says rents of grade-A office buildings in Pudong rose by 1.3 per cent quarter-on-quarter to 9 yuan per square metre per day in the first quarter, while rents in Puxi dipped by 0.3 per cent from the previous quarter to 8.9 yuan.

However, when it comes to the rents for Shanghai's top 18 office buildings, those in Pudong averaged 10.5 yuan per square metre per day, compared to 10.7 yuan for those in Puxi, says Jones Lang LaSalle. But the firm forecasts rents in Pudong will overtake Puxi in this quarter or the next quarter.

Taking into consideration the overall office-space market - including premium, grade-A and grade-B buildings - CBRE says the average rent for office space in Pudong is about 10 per cent above Puxi's.

Michael Klibaner, the head of research for greater China at Jones Lang LaSalle, says office rents in Pudong are continuing to rise steadily due to limited new supply. "We have seen Pudong truly become the financial district of Shanghai," said Klibaner.

He said rents there were 10 to 20 per cent higher than in Puxi before the global financial crisis of 2008. They fell subsequently due to declining demand and increased supply.

Furthermore, thanks to the government's encouragement, major domestic and foreign financial firms have been relocating to Pudong.

"We are seeing a short-term supply drop below historic averages in Pudong and this is putting upward pressure on rents in that district," said Michael Stacy, senior director of office services at CBRE. "However, with Oriental Financial Centre, Shanghai Tower, Foxconn and other projects being released onto the market in the next few years, we expect rentals to remain stable."

Shanghai IFC II in Lujiazui is asking the highest rents in Pudong, with asking rents for the upper floors of the office tower pitched at about 16 yuan per square metre a day, says CBRE.

In the long term, the mainland's financial markets are expected to further open up, says Shaun Brodie, DTZ's head of China strategy research.

Consequently, office space in Pudong will see greater demand from local and foreign firms, he adds. "This in turn will see Shanghai's main financial area enjoy higher rentals than Puxi on a longer more sustainable basis," said Brodie.