Slow consumption growth leads to softening overall demand

• Despite some leasing activities, cautious decision-making prevailed due to uncertain economic conditions. Tenants showed hesitancy towards expansion and considered downsizing when leases approached expiry. Vacancy increased to 23.2% in Q2 2024.
• Overall market continued to diverge due to imbalanced supply delivery. Vacancy in the west submarkets saw major increases after a continuous rise in stock. On the contrary, submarkets with little supply pressure retained healthy vacancy levels.

Supply pressure is still building up

• Supply continued to grow, reaching 726,000 sqm in Q2 2024, the fourth consecutive quarter with over 200,000 sqm of new supply. The majority of the quarter’s supply is located in Jinshan with the largest phase of the DNE Galaxy project completed.
• Submarkets in west Shanghai continued to feel the bulk of the market’s supply pressure. Over the past 12 months, leading up to June 2024, around 90% of the new spaces were completed in west Shanghai submarkets, namely Jinshan, Qingpu and Songjiang.

Rents continue the downward trajectory

• Overall rents declined by 1.0% q-o-q on a like-for-like basis, reaching RMB 1.52 per sqm, per day. Landlords became aggressive in setting rents, especially for new projects. Submarkets with intense supply pressure experienced major rent declines.
• No investment transactions were closed in Shanghai in Q2 2024. Investors are selective about assets given recent supply waves, subdued demand and the slow recovery of overall consumption. This also causes it to take more time to close deals.

Outlook: The market is expected to be under pressure over the short term

• Shanghai’s supply wave is anticipated to continue, with annual supply expected to reach 1.5 million sqm. While short-term supply additions will continue to skew towards west Shanghai submarkets, Fengxian and Lingang are also expecting new projects.
• We are expecting the competition among landlords to intensify over the short term in Shanghai’s logistics market, given the expected consecutive record-year of new supply. Rents are anticipated to keep a downward trend over the next 12 months.