APPD Market Report Article


May 26, 2024

Daniel Yao, Head of Research, China


RMB 8.38


Decentralisation persists; upgrades witnessed

  • Net absorption reached 58,500 sqm, with inspections rising after the Chinese New Year holiday. Absorption in the CBD was 1,300 sqm for the quarter, with upgrade demand growing more prominent. Tenants with leases expiring in Grade B and flexible offices leveraged the recent fall in rents to upgrade to nearby Grade A properties.
  • Decentralised net take-up reached 57,200 sqm, supported by relocation demand as CBD tenants continued to seek cost-saving opportunities. We observed some renewal deals completed on tenant-favourable terms. New energy vehicle (NEV) firms and other players in the ‘new energy’ sector were active in the decentralised market.

Two projects deliver 97,800 sqm in 1Q24

  • In the CBD, one project added 39,100 sqm to the Hongqiao market. New supply combined with lower overall net absorption led the CBD vacancy to rise 0.4 ppts q-o-q to 15.3%. 
  • One decentralised project completed with 58,700 sqm. The project’s location in the Xuhui decentralised area helped it attract considerable upgrade and relocation demand from the surrounding area. Combined with relocation demand from CBD tenants, this trend helped decrease the Decentralised vacancy by 0.2 ppts q-o-q to 29.6%. 

Price-driven tenants continue to put downward pressure on rents

  • Overall rents continued to decline as supply pressure persisted and market sentiment remained conservative. Tenants have come to expect low rents and have strong bargaining power over landlords. In the CBD, rents declined 2.4% q-o-q, with landlords providing greater incentives to retain tenants. 
  • The Decentralised market’s rents fell 2.2% q-o-q as many projects continued to face high vacancy. Landlords are actively adjusting leasing strategies to compete and attract potential tenants to relocate from ageing CBD office properties.

Outlook: Inspections to pick up gradually amid rent declines

  • We expect rents to decline further over the short term. Leasing demand should be mainly price-driven, as cost savings remain a key driver of demand. Leasing and inspection demand is likely to gradually recover as some firms take advantage of the tenant-favourable market.
  • Traditional sectors, including financial services, professional services and TMT, are expected to underpin leasing demand in Shanghai. Moreover, we expect Shanghai to see further growth in the number of firms from sectors including AI and autopilot technology, new energy and advanced manufacturing.

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

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