APPD Market Report Article

Shanghai

May 31, 2022

4.5%

RMB 9.36

Rents
Rising

Active demand carried over from 2021 before the outbreak in March

  • Leasing activies were disturbed in March, yet, overall absorption still reached 295,100 sqm in 1Q22. CBD net absorption reached 43,500 sqm, and was attributed to take-up from domestic financial and professional services in Pudong. In Puxi, business confidence was high with active demand from diverse sectors, though net absorption was limited by scarce vacancy.
  • In the decentralised market, net absorption reached 251,700 sqm. Manufacturing & trading and life science companies remained active. Some domestic financial and professional service firms sought opportunities to upgrade or expand. However, the recent pandemic lockdown will hinder leasing activities and force companies to delay leasing decisions, likely causing a downturn in new leasing demand.

Three projects deliver approximately 233,200 sqm

  • No new projects reached completion in the CBD, allowing vacancy to continue to decrease. Vacancy in the Puxi CBD fell 0.2 ppts q-o-q to 5.8%, and upcoming projects there have received active pre-leasing. In the Pudong CBD, strong leasing momentum led vacancy to decline by 1.0 ppt q-o-q to 8.9%.
  • All three of this quarter’s new completions were in the decentralised market. Despite the 233,200 sqm of supply, strong leasing and enquiries in some of the new projects led decentralised vacancy to fall 1.0 ppts q-o-q to 23.9%.

Rent growth continued to increase before the latest COVID-19 wave

  • CBD rents grew 2.2% q-o-q. In the Puxi CBD, rents rose 2.4% q-o-q amid strong landlord sentiment. Pudong CBD rents rose 2.0% q-o-q as the recovery improved and older buildings saw active leasing. In the decentralised market, multiple submarkets saw a recovery in performance, leading rents to rise 2.5% q-o-q.
  • While demand was active and leasing strong, cap rates remained flat as investors were cautious in the face of challenges including a large supply pipeline, a local resurgence of the pandemic, and an uncertain global economy.

Outlook: Policy support to balance pandemic effects

  • Over the short term, while demand is expected to be strong in both the Pudong and Puxi CBDs, the recent outbreak in Shanghai has led to delays in leasing. The impact on net absorption will depend on how fast the pandemic is brought under control. Looking ahead, we expect a short-term decrease in leasing demand caused by the pandemic, with rents also likely to face downward pressure.
  • Looking further ahead, supportive policies will help to strengthen Shanghai’s office market. Domestic firms in both traditional and ‘new economy’ sectors will provide stable demand in the form of upgrading and expansion. Meanwhile, foreign companies remain cautious due to ongoing uncertainty.

Note: Shanghai Office refers to Shanghai's overall Grade A office market, consisting of Pudong, Puxi and Decentralised areas.

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