Grade A office market to see abundant supply: report

Shanghai's Grade A office market will see abundant new supply in the second half of this year, leaving upward pressure on vacancy rates, according to recent forecasts by global real estate services provider Savills.

During the six months through December, nearly 1.4 million square meters of Grade A office space will be launched across the city in both core and decentralized locations, Savills' research showed.

"The second half of 2018 will remain tough for landlords, especially those of older projects which are confronted with increasing competition from new supply," said Chester Zhang, associate director at Savills China research.

"These landlords are more open to discussion during renewal negotiation with existing tenants, while large space occupiers will have more room to bargain on their rental prices."

Between April and June, five new Grade A office projects totaling 426,300 square meters were launched in core locations, bringing up vacancy rates by 2.2 percentage points to 12.4 percent. In the decentralized market, new supply of Grade A office space reached 563,400 square meters during the same period, pushing up vacancy rates by 1.7 percentage points to 35.5 percent, the highest level over the last three years, according to Savills.

A separate report released by global property adviser JLL said that Grade A office rents edged up in both CBD and decentralized areas in the second quarter of this year amid continuously robust leasing demand mainly from co-working operators, TMT (technology, media and telecom) and financial service companies.

CBD rents climbed 0.5 percent quarter-on-quarter to 10.3 yuan (US$1.54) per square meter per day, while in the decentralized market, rents climbed 0.7 percent from the previous quarter to 6.7 yuan per square meter per day, JLL's data showed.

"In addition to strong co-working demand, TMT and financial service firms remained active in the CBD," Anny Zhang, head of markets for JLL Shanghai said. "In the decentralized market, TMT companies and manufacturing firms were the main demand drivers, alongside expansion by co-working operators."