APPD Market Report Article

Shanghai

December 1, 2021

2.8%

RMB 1.5

Growth
Slowing

Logistics demand remains strong in Shanghai

  • The third quarter recorded 209,600 sqm of net absorption in another strong quarter for demand, with both new completions and older assets seeing robust take-up. The 3PL sector continued to be the main source of demand, as domestic and international logistics firms signed new leases and renewals.
  • Manufacturers represented another major demand source, with particularly active leasing from new energy vehicle companies. For example, Tesla expanded in Shanghai for a fifth time Lingang submarket. In addition, emerging drivers remained active, with cold chain operators seeking space in Jiading submarket.

Vacancy declines despite large new supply

  • Two new projects delivered circa 180,000 sqm space to the Shanghai market. Both Lingang Modern Logistics project and New Ease Galaxy Phase 1 saw strong net take-up upon completions. Another project was delayed to later in the year.
  • Shanghai’s vacancy rate fell from 5.9% to 4.4% despite the quarter’s large supply. Most submarkets saw progress in leasing out space. Similar to the previous quarter, Jinshan submarket saw a relatively larger decline in vacancy rate thanks to higher starting vacancy and strong take-up in new completions.

Strong demand with low vacancy leads to further growth in rents

  • Warehouse rental growth accelerated to 1.1% q-o-q on a like for like basis with rents reaching RMB 1.53 per sqm per day. Rental growth also increased to 2.8% in y-o-y terms. The rising growth rates indicate landlords in most submarkets feel more comfortable to raise rents thanks to the market’s low vacancy and strong demand.
  • No asset-level or portfolio deals were closed in the Shanghai market in the quarter. However, with the launch of REITs in China providing new potential exit channel, increasing numbers of new investors looking for opportunities in China’s logistics market, especially in Tier 1 cities such as Shanghai.

Outlook: Large supply expected in final quarter of 2021

  • Five projects totalling 930,000 sqm of new supply are expected to reach completion in the remainder of the year, which would make the fourth quarter the busiest quarter on record and leave 2021 as Shanghai’s largest year of new supply.
  • Strong take-up for both existing and new projects over the past two quarters reflects strong demand in the year so far. That said, the sheer volume of expected new supply may put pressure on vacancy and rents by the end of the year, and supply in 2022 is expected to be large as well.

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

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