Office rents likely to slip back

Abundant supply in Shanghai's core markets and a wait-and-see attitude takes the steam out of the Grade A market.

Rents for Grade A offices in Shanghai's core markets are expected to slip this year with an abundant supply in both core and decentralized locations, according to the latest research.

About 660,000 square meters of Grade A offices are expected to be released in core areas of the city, bringing the total of high-quality office spaces in prime locations to more than 8 million square meters, Colliers International said.

"Coupled with abundant new supply in decentralized areas, we expect the average rent at Grade A buildings to shed 0.04 percent this year in core locations amid continuously stable demand and vacancy may climb 2.1 percentage points to 12.1 percent during the same period," said Timothy Chen, director of research for the real estate company's East China operation. "In ensuing years, namely between 2020 and 2023, Grade A office rents may pick up again at a steady pace as new supply will be comparatively limited."

A report by commercial property consultancy CBRE, pointed out that Shanghai's Grade A office market started to lose steam in the second half of 2018, mainly affected by changing economic circumstances abroad as well as a significant new supply, both of which led to delays in decision and a wait-and-see sentiment. Meanwhile, some cost-driven enterprises also included co-working options in their solutions to meet short-term expansion demand.

"A notable trend we've noticed is that demand from new media, new energy and culture and entertainment industries has been climbing steadily since last year, a gradual shift that will probably make Shanghai more similar to its global metropolitan counterparts in terms of Grade A office tenant mix," said Fion Zhang, head of advisory and transaction services at CBRE's Eastern China office. "In 2018, for instance, joint demand from financial services, TMT and manufacturing industries, or the three traditional dominant sources of demand for Grade A offices in Shanghai, fell by 9 percent from a year earlier in terms of contracted space."


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