Grade A office rents hold steady despite huge supply

Grade A office rents remained steady in Shanghai's core CBD markets in the first quarter of 2018 despite large supply, the latest data released by international property advisors showed.

Citywide, average rents at Grade A buildings in the CBD managed to hold flat, or were up 0.2 percent quarter on quarter, even with six projects with a total gross floor area of 375,140 square meters — including One Museum Place in Puxi and Lujiazui Finance Plaza in Pudong New Area — reaching completion between January and March, JLL said in a quarterly report released today.

"Domestic financial services companies, especially those in the asset management sector, continued to be a major demand driver in the local Grade A office market," said Danial Yao, head of research for JLL East China. "Notably, robust demand from co-working operators — including both well-known players and newcomers — has been giving an additional boost to landlords."

In Shanghai's Grade A office market, about 150,000 square meters of net absorption, a measure of change in total demand, were contributed by co-working operators in 2017, accounting for 13 percent of the city's total. They are estimated to grow further to 180,000 square meters this year, according to JLL's forecast.

Meanwhile, new supply of Grade A buildings pushed vacancy rates up to 12.4 percent during the first three months, an increase of 0.5 percentage points from the last quarter of 2017, and a year-over-year increase of 2.2 percentage points, according to a separate report released by Savills.

"Landlords remain under pressure with growing competition from new supply, which will continue to be the biggest challenge for the Shanghai office market," said James Macdonald, senior director of Savills China.

"We expect vacancy rates to go up further as a total of 2.4 million square meters of Grade A office space in both core and decentralized locations are scheduled to be released across the city in the remainder of 2018."