Decentralized locations in Shanghai becoming popular for Grade A offices

RISING tenant demand and rapid urban development have spurred the growth of Grade A offices in decentralized locations in Shanghai over the past years while their CBD counterparts are set to  maintain a rental premium because of a tight supply in the medium to long term, a research released by international property consultancy JLL has found.

The city's decentralized Grade A office inventory has surged from just 400,000 square meters in 2009 to around 5 million square meters, according to the report based on both JLL's research and surveys conducted among 165 corporate occupiers and 31 investment institutions.

"The traditional CBD can no longer contain the city's increasingly varied office demand and the recent rise in decentralized Grade A office supply has brought Shanghai's real estate market one step closer to maturity," said Daniel Yao, head of research for JLL East China. "About 61 percent of the city's Grade A net take-up over the past four quarters came from the decentralized market, compared with only 29 percent in 2009."

Six key factors including accessible transport, higher-quality buildings and development of retail amenities have driven the vibrancy of the city's decentralized office market, fuelled by increasingly robust demand from companies to upgrade, expand or consolidate their offices, JLL's survey showed.

Shanghai's supply of decentralized Grade A offices will expand to nearly 9 million square meters over the next five years while CBD Grade A office inventory will increase to 7.5 million square meters from 6.1 million square meters now during the same period, according to JLL data.

About 23 percent of respondents expressed strong interest in new office space in decentralized locations that offer a discount of 2 yuan (30 US cents) per square meter per day compared to the CBD, the report said. A further 15 percent of respondents would be willing to move to non-CBD locations if a discount of 3 yuan per square meter per day is provided.