Shanghai's Grade A office market performs vibrantly in 2017

Good performance comes despite slight rise in vacancies amid record supply.

SHANGHAI'S Grade A office market performed vibrantly in 2017 despite vacancies rising slightly amid record supply, major international real estate services providers said.

More than 2.2 million square meters of new Grade A offices — 1.6 million square meters in the decentralized market and the rest in the CBD — were released to the local market, a record for Shanghai and a significant surge from 1.02 million square meters in 2016, JLL said in a report released today.

"Co-working operators, financial services providers particularly domestic firms, retail as well as TMT (technology, media and telecom) companies were major demand drivers in the city's Grade A office market over the past year," said Eddie Ng, managing director for JLL's East China operation. "Notably, fringe CBDs such as the railway station and the

North Bund areas continued to gain momentum as they outperformed other submarkets in rental growth because of good metro accessibility and high project quality."

The average vacancy climbed 2 percentage points year on year to 10.2 percent in the CBD at the end of 2017 while that in the decentralized market gained 8.8 percentage points to 26.8 percent during the same period, according to JLL data.

Meanwhile, landlords in core CBD areas have been facing high pressure in rents from their counterparts in decentralized areas.

"As new supply of Grade A offices is expected to remain high in 2018, some office owners in core CBD areas have adjusted their rental expectations to retain or attract tenants which, therefore, led to a moderate year-over-year decrease in the core CBD area," said Timothy Chen, director of research for Colliers International's East China operation.

Core CBD Grade A office rents were 10.19 yuan (US$1.56) per square meter per day at the end of the fourth quarter, down 2.4 percent from the end of 2016, Colliers data showed.

Core CBD areas will likely see new supply of Grade A offices of 573,000 square meters in 2018 while the average vacancy should stay at around 15 percent, according to Colliers' forecasts.

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