The rising momentum of the office market in Shanghai and Beijing continues despite the country's slowing economic growth, as the office market is more tied to growth in financial services than overall gross domestic product (GDP) activity. With growth in the financial sector, especially expansion among local financial institutions, the outlook for the two key office markets is positive, said analysts. "Office market growth is more correlated to growth in financial services than the overall economy," said Leif Chang, analyst at China Property of BNP Paribas Securities Asia. First quarter data in Shanghai and Beijing shows that financial services growth continued to outperform overall GDP growth in both cities, and was the largest economic growth driver. In Shanghai, financial services growth was its strongest ever at 52 per cent year-on-year against overall GDP growth of 9 per cent, according to a report by BNP Paribas. As a result, Shanghai's Pudong district saw 8 per cent rental growth and vacancies down only 0.1 percentage point year on year to 3.4 per cent, thanks to increased demand from domestic financial institutions, according to BNP Paribas. Beijing Central Business District saw rents up 4.5 per cent year on year as financial services grew. "We stay positive on the office market, particularly Shanghai Pudong given its strong position as China's financial centre," Chang of BNP Paribas said. According to a study by CBRE, the share of office space in Shanghai leased by financial occupiers rose sharply from 17.6 per cent in 2005 to 33.7 per cent in 2014, vaulting it from third place to top position. In comparison, the share of manufacturing tenants declined dramatically from 31.5 per cent in 2005 to 22.3 per cent in 2014, ranking No2. Sean Lim, executive director and head of office services at CBRE China, is positive about the long-term growth of the office market in Shanghai, despite challenges from abundant new supply in the near term. Domestic tenants will gain more importance along with their continuous expansion and upgrading needs, said Lim. BNP Paribas believes Shanghai Pudong should be the biggest beneficiary from continued positive policies rolling out in the Shanghai Free Trade Zone. On April 20 the State Council announced it would expand the zone to include Lujiazui Financial Area, the Jinqiao Export Processing Zone and Zhangjiang Hi-tech Park. This expansion will enlarge the zone from 28 square kilometres to 121 sq km.
