APPD Market Report Article

Shanghai

August 26, 2022

Daniel Yao, Head of Research, China

3.5%

RMB 9.30

Rents
Falling

Office demand recovers after business resumption in June

  • Overall net absorption for the quarter recorded 30,200 sqm, and the CBD recorded a decrease in net absorption. After the resumption of business activities in June, office leasing activities have gradually recovered. Ongoing leasing deals have continued, and many projects have received increased enquiries and inspections.
  • Net absorption in the decentralised market fell to 37,900 sqm. Financial and professional services remained resilient and the life sciences sector continued to show steady demand. However several companies in the trading, online education, and TMT businesses, as well as small companies that rely on crucial cash flow, have been impacted, resulting in a downturn in demand.

One new building enters the market amid city-wide delays

  • One new building was added to total stock, pushing overall market vacancy up by 0.7% q-o-q to 16.6%. In the CBD, several anticipated projects have been pushed back to the end of 2022.
  • The decentralised market saw one new building with 170,000 sqm of office space entering the Xuhui Bund submarket. Consequently, vacancy increased by 1.1% ppts q-o-q to 25.0%. Given the decentralised market’s large amount of available supply, projects with large vacant spaces will face greater competitive pressure.

Rents decrease as landlords adjust expectations

  • In the CBD, diverse demand sources and high occupancy rate supported overall rents to remain steady. Several landlords of buildings with higher vacancy adjusted their expectations as a result of the COVID-19 outbreak, causing CBD rents to fall by 0.6% q-o-q.
  • In the decentralised market, rental divergence across submarkets has intensified. Submarkets with higher vacancy rates faced greater competition, with several landlords actively adjusting rental expectation. As a result, rents decreased by 1.5% q-o-q.

Outlook: Pandemic impact is expected to dissipate in 2H22

  • Overall, the office market will likely face short-term pressure as the recent COVID-19 outbreak has led many firms to delay leasing decisions. Stabilised projects in the CBD are expected to be resilient, although higher vacancy may create more challenges for the decentralised market.
  • Despite short-term challenges, supportive policies will likely help to bolster Shanghai’s office market. Resilient sectors such as financial and professional services will likely contribute significantly to office demand. Over the medium-to-long term, the life sciences, as well as new economy sectors such as new energy, are anticipated to grow their presence in office leasing.

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

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