APPD Market Report Article


August 26, 2022

Daniel Yao, Head of Research, China


RMB 1.56


Leasing activity is interrupted amid pandemic restrictions

  • Quarterly net absorption further declined to just 6,000 sqm, leading vacancy to rise from 8.5% last quarter to 9.9%. With Shanghai’s pandemic restrictions curtailing business activity for most of 2Q22, landlords were experiencing delays with securing new tenants while many existing leases expired.
  • Most of the quarter’s new leasing took the form of pre-leases in a new completion in Qingpu. A retailer’s pre-lease of more than 40,000 sqm helped balance out the lockdown’s other impacts on absorption, which also demonstrated market confidence in Shanghai fundamentals during this period.

Lockdown leads to delay of most planned completions

  • Four out of five projects scheduled to deliver in 2Q22 were delayed as Shanghai’s lockdown halted business activity. The only completion in the quarter was GLP Xianghuaqiao Logistics Park (120,000 sqm) in the Qingpu submarket.
  • Delays stemming from 2Q22’s lockdown will likely lead to increased supply pressure in the second half of 2022. This is especially true for Qingpu, which accounts for more than half of the year’s remaining supply. Combined with the quarter’s new completion, new supply could lead to increased vacancy in Qingpu.

Rents continue to rise but at a slower pace

  • Rents grew by 0.7% q-o-q and 3.6% y-o-y on a like-for-like basis. While growth remained positive, it represented a deceleration from the pace of 1Q22.
  • The Greater Shanghai investment market remained active, with Link REIT paying RMB 947 million to acquire a logistics portfolio from Dongbai that included three projects in Changshu and Jiaxing. Morgan Stanley bought a portfolio of four logistics assets in cities surrounding Shanghai (a total GFA of more than 210,000 sqm) from SC Capital Partners.

Outlook: Supply pressure to remain elevated over the short term

  • Supply pressure will be significant in 2H22 as several projects were delayed out of the second quarter as a result of COVID-19 control measures. Seven projects totalling 662,000 sqm are expected to be delivered over the rest of the year, increasing the likelihood that vacancy will remain elevated.
  • While demand in the first half of the year was disrupted by the pandemic, leasing is expected to rebound quickly as the lockdown is lifted. Consumers are expected to maintain the new habits picked up during the pandemic, boosting demand for emerging sectors like cold chain. Therefore, rents are expected to continue rising, though at a slower pace.

Note: Shanghai Logistics & Industrial refers to Shanghai's modern warehouse facilities.

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