Mixed quarter for Grade A office market

Demand softens in traditional CBDs, both in Pudong and Puxi, while emerging districts remain strong. Competition for tenants is heightened by rising supplies.

Shanghai's Grade A office market recorded mixed results in the first quarter of this year amid rising competition brought by abundant supply, industry data released by international real estate consultancies show.

"Leasing demand in the traditional CBDs moderated in the first three months while that in emerging business districts remained strong during the same period," said Anny Zhang, head of markets for JLL China. "As we've perceived, emerging CBDs such as Qiantan and Xuhui Bund have attracted strong interest particularly from health care, TMT and manufacturing companies seeking cost saving and expansion opportunities."

Between January and March, Grade A office rents in Pudong CBD fell 1.4 percent quarter on quarter and those in Puxi CBD declined 0.5 percent. That compared with a milder 0.6-percent retreat and a 0.3-percent slip in their decentralized counterparts on either side of the Huangpu River, according to JLL data.

A separate report released by Savills also found that vacancy rates at Grade A buildings in core and decentralized areas of Shanghai both headed south during the three-month period, amid mounting pressure from new supply.

Vacancy rates increased 0.1 percentage point to 12.5 percent in core markets while those in decentralized areas added 1.9 percentage points quarter on quarter to 33.9 percent.

"Competition for tenants has intensified amid continuous oversupply, which has reduced pre-commitment levels and lengthened the required time for properties to stabilize their occupancy levels," said Chester Zhang, director at Savills China research. "This was evidenced by the relatively low pre-commitment rates seen in most projects launched in the first quarter."

Shanghai's new supply of Grade A offices is forecast to remain at the same level as in 2017, or more than one million square meters for both core and decentralized areas, Savills data showed.


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