Office rental market softens in third quarter

Abundant supply and softening demand plagued Shanghai's Grade A office market for another quarter with rents in both prime and decentralized areas heading south again from the previous three-month period, global property adviser Savills said in its latest report.

Grade A office rents in the city's core CBD areas dipped 0.2 percent to 8.95 yuan (US$1.26) per square meter per day between July and September, while they fell 0.7 percent to 5.76 yuan per square meter per day in decentralized areas during the same period, according to Savills's newest quarterly report.

Grade A office inventory in core CBD areas further rose to 9.2 million square meters by the end of September with about 227,000 square meters being added during the third quarter, pushing the vacancy rate up to 13.2 percent, 1.3 percentage points higher than the second quarter and the highest in 10 years. Meanwhile in decentralized areas, inventory gained 14,000 square meters to some 4.2 million square meters, pushing vacancy 1.1 percentage points down to 28.8 percent.

"The city's Grade A office market is expected to remain subdued in the fourth quarter of this year with vacancy level climbing and actual rents going downward," said Elle Xu, senior manager of research at Savills China. "However, bucking the overall sluggish momentum, demand from emerging industries, such as gaming, artificial intelligence, 5G and Internet of Things, may offer some boost to the market."

In the last quarter of this year, new supply of Grade A offices in both core CBD and decentralized areas will reach about 1.1 million square meters across the city, according to the company's forecast.