New developments are springing up in Shanghai outside the traditional CBDs, as the core areas run out of room. From locations close to existing CBDs such as the Railway Station (north of Nanjing West Road submarket) to desolate areas away from any mature CBDs such as Qiantan, when and which of these new comers will become the next new CBD?

Map: Key emerging CBDs in Shanghai

Recently, many investors and developers have come to us to discuss one critical input – the scale (of commercial development) needed in order for the potential “future CBDs” to achieve critical mass. As development scale increases with demand levels, we chose three recently established mature markets for our scale assessment, namely Railway Station, Pudong Century Park, and North Bund clusters.

We found that, when their scale – including Grade A office projects and prime retail space – approaches 300,000 to 400,000 sqm, the areas began to achieve the critical mass needed to become a destination.

Figure: Commercial Scale When First Perceived as a Mature Submarket

Source: JLL

Take the Railway Station for example. This area’s office tenant profile previously consisted heavily of smaller-scale domestic companies. WPP Campus’ completion in 2015 pushed the submarket’s commercial scale close to 300,000 sqm, and after it successfully secured the famous company as an anchor tenant, demand started to grow organically.

The next nearby completion of KEC III- Enterprise Centre picked up this momentum and achieved a high pre-leasing rate of 80 per cent upon completion including a larger number of well-known multinational tenants such as Cardinal Health. By then, this submarket had secured its spot on the shortlist of mature business districts in Shanghai.

While the general range is 300,000 to 400,000 sqm, submarkets that are extensions of current mature CBDs will require slightly smaller scale, as they can naturally benefit from the spill-over demand from the central locations. For submarkets that are more isolated from the city centre, they will require more than larger scale, but also “a reason for high profile tenants to move there”, stemming from integrated efforts with project quality, joined forces from experienced developers, more government support, and so on.

Besides the scale requirement, what’s almost equally critical is the quality of the commercial projects. Sometimes, one trophy project can put a submarket on the map, and scale that follows can bring the submarket to maturity. While scale and quality are two relative objective inputs for a “future CBD”, they are not the only parts in this equation. Master planning of the whole area, how experienced the developers are, lifestyle elements, as well as what we like to call an “X factor” including historical attractions or river views, etc., are all factors that need to be evaluated holistically for more precise identification of future CBDs.

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