Grade A office market recovery continues in Q2

Cao Qian
Domestic financial and professional services firms are major drivers in city office leasing, experts report.
Cao Qian

Shanghai's Grade A office market extended its recovery in the second quarter of 2021 amid steady release of pent-up demand in both CBD and decentralized locations, according to latest research by major international property consultancies.

Net absorption, a barometer of market demand for office space, stood at 450,000 square meters between April and June, an increase of about 50 percent from the previous three-month period, JLL said in its regular quarterly report.

"Domestic companies remained the major driving force in the office leasing market, with financial and professional services firms posting strong demand particularly in Pudong's CBD areas," said Stanley Jiang, head of project leasing for JLL Shanghai markets.

"In decentralized areas, which accounted for some three-quarters of the total net absorption, TMT (technology, media and telecommunications) and manufacturing and trading companies accounted for a large share of the leasing activity, mainly propelled by consolidation and expansion needs."

Overall rentals in CBD and decentralized locations both edged up, by 0.3 percent and 0.7 percent, respectively, from the first quarter, despite somewhat mixed performances along the east and west banks of the Huangpu River.

A separate report released by CBRE showed that net absorption in the first six months of this year already surpassed the entire 2020.

"While new supply jumped 245 percent year-on-year to 421,000 square meters during the first six months, the overall vacancy rate fell 1.9 percentage points to 17.8 percent across the city by the end of June, the lowest since the first quarter of 2019," said Ivy Lu, head of research, CBRE Eastern China. 

"Submarkets including Qiantan in Pudong and Xuhui Bund West in Xuhui, among others, were strong performers, with the vacancy rate in Qiantan standing at 13 percent, the lowest in Pudong."

By industry, TMT, financial services and consumer products manufacturing led all in new leasing during the first six months, accounting for 30 percent, 15 percent and 11 percent, respectively, of the total in terms of leasing area.

By submarket, Qiantan, Wujiaochang and Lujiazui were the most popular among Grade A office tenants in the first half, taking a share of 11 percent, 10 percent and 8 percent, respectively.

For the second half, some 870,000 square meters of new Grade A office space, including some landmark projects recording robust pre-lease activities, are estimated to be rolled out into the market, and net absorption for the whole of 2021 will likely hit the highest in years, according to the CBRE forecast. 

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