Beijing office space almost 50 per cent more expensive than in Shanghai
Shanghai may aspire to becoming a global financial centre but since 2010 it has lost its position to Beijing as the mainland's most expensive office location and is unlikely to see a return to that past glory in the next five years.
A huge supply in the pipeline will force many of Shanghai's landlords to cut rents to secure tenants to fill their buildings.
"In the period up until 2010, Shanghai Grade A rents were substantially higher than those being asked for equivalent properties in Beijing, with the gap reaching its most extreme point in 2008 when Shanghai Grade A rents - at 350 yuan per square metre - were fully 64 per cent higher than those in Beijing," said Andrew Ness, DTZ's head of research for Greater China.
"Currently, Grade A office rents average 268 yuan [HK$340] per square metre per month in Shanghai and 382 yuan per square metre per month in Beijing, so Grade A office rents in Beijing are indeed 43 per cent higher than those being quoted for similarly high-grade buildings in Shanghai," said Ness. A separate study by Colliers International found a similar trend and highlighted that, on net effective rent, Shanghai lost its most expensive office location mantle after the global financial crisis.
Mainland corporations expanded their office presence in Beijing rapidly under the central government's four trillion yuan economic stimulus package, bringing office rents in the city up 42.6 per cent year on year in 2011.
Average Grade A office rents in Beijing have been above Shanghai's since then. "On the other hand, multinational companies which have a presence in Shanghai consolidated or stopped expansion post global financial crisis," said Carlby Xie, director of research at Colliers China.
Xie said the price difference between Beijing and Shanghai narrowed in last year's fourth quarter but "will widen again this year as a huge supply is coming in the pipeline".
"In the next five years, Shanghai's average Grade A office rents will not catch up with those of Beijing," Xie said.
Even though Pudong, Shanghai's financial district, would see bigger growth with the development of the city's free-trade zone and growing finance industry, the rental increase would not catch up with Beijing's top premium office buildings, said Xie.
The most expensive office building in Beijing, and in the entire mainland, is China World Tower (previously known as China World Trade Center 3) with an achievable average monthly rent of about 569 yuan per sq m at the end of the first quarter, according to Colliers Research. According to DTZ, a large amount of Shanghai supply was anticipated between the second quarter of this year and 2019 as 65 buildings came on stream with a total of 6.4 million sq m, or the equivalent of 90.3 per cent of existing stock.
"This will have a major diluting effect on the office market, even as underlying demand is anticipated to remain robust," said Ness.
"This continuous wave of supply will place a lot of pressure on landlords to offer an attractive rental package to existing occupiers [in the case of renewals] and potential occupiers."
The Beijing Grade A office market had very limited new supply after 2010, resulting in a shortage which persisted for several years.
Office supply would increase in the next few years but was smaller in scale compared with Shanghai's, according to property consultants.
Beijing Finance Street has become an unusually expensive office area, with rents in the first quarter of this year recorded at 559 yuan per sq m, or 46 per cent higher than Beijing's overall Grade A office rents.
Of the top 50 most expensive office buildings in China ranked on the basis of their asking rent for a standard-sized unit, 43 of the properties were in Beijing and only seven properties were located in Shanghai, according to DTZ.