APPD Market Report Article
ShanghaiSeptember 4, 2023
Daniel Yao, Head of Research, China
Demand soft over the second quarter
- After showing signs of recovery in the first quarter, leasing demand was subdued in 2Q23 with a net absorption of 15,000 sqm. Tenants adopted conservative strategies for their leasing footprints, preferring to renew current leases rather than expand or relocate. New supply contributed to a rise in vacancy to 13.8% at the end of the quarter.
- While overall demand was muted, some 3PL firms continued to expand. For example, a local 3PL leased 9,000 sqm in the Qingpu submarket.
Supply wave continues
- Shanghai’s logistics market saw two new projects add 421,000 sqm in the quarter, exceeding the total space delivered over all of 2022. ESR Qingpu Yurun was the largest project, delivering 346,000 sqm to the Qingpu submarket. In addition, a local developer completed a 75,000 sqm project in Lingang.
- Supply is expected to remain robust in 2H23 with five projects totaling 436,000 sqm. Combined with stock completed in recent quarters, the new supply is expected to add pressure on vacancy and rents in submarkets like Qingpu, Songjiang and Jinshan.
Rent growth further decelerates
- Rent performance diverged across submarkets. While stable and mature submarkets saw continued rent growth, markets facing supply pressure experienced softer rent performance. Overall rents continued to rise, though at a slower pace. Rents edged up 0.17% q-o-q on a like-for-like basis to RMB 1.58 per sqm, per day.
- No investment transactions were closed in Shanghai over the quarter. While investors are becoming more selective about assets, top-tier markets like Shanghai remain preferred destinations for both domestic and offshore investors.
Outlook: Market to face further pressure over the short term
- Relatively soft demand coming out of 1H23 along with continued supply pressure is likely to keep Shanghai logistics vacancy elevated over the short term, constraining rent growth. That said, we expect demand to improve later in the year as consumer confidence recovers.
- We expect performance to continue diverging at the submarket level. Mature submarkets with limited new supply and close proximity to consumers are expected to display a strong performance, while areas with significant supply are likely to see competition to fill vacancies.