APPD Market Report Article

Shanghai

December 1, 2021

-0.5%

RMB 9.09

Rents
Stable

Recovery picks up pace with strong expansion demand

  • Overall absorption reached 380,000 sqm, with CBD net absorption rising to 174,000 sqm. Domestic financial service and professional service firms remained active in Lujiazui, while demand in Puxi was driven by a range of sectors including financial services, professional services, retail, and TMT.
  • Net absorption in the decentralised market reached 212,000 sqm, driven mainly by domestic firms. In terms of sectors, TMT and financial services firms showed strong demand for expansion opportunities, while enquiries from firms in the pharmaceutical sector also increased, especially in the Qiantan submarket.

Seven projects deliver approximately 477,000 sqm

  • One project reached completion in Changning CBD with a GFA of approximately 57,000 sqm. Despite the new supply, active leasing activity allowed the overall CBD vacancy rate to decline 1.7 ppts q-o-q to 9.3%. Puxi vacancy fell 1.8 ppts to 7.7% while Pudong vacancy fell 1.4 ppts to 11.2%.
  • In the decentralised market, six projects with a total GFA of approximately 420,000 sqm reached completion. While demand for the decentralised market was also strong, the large amount of new supply led vacancy to edge up by 1.3 ppts q-o-q to 27.8%.

Overall rents start to increase as a result of leasing recovery

  • Overall CBD rents rose by 0.9% q-o-q, with rents in Puxi CBD up 1.8% q-o-q, driven by increases in premium buildings. Pudong CBD rents remained largely flat amid widening divergences in performance between individual buildings. Decentralised rents rise by 1.3% q-o-q, led by submarkets with strong performance such as Qiantan.
  • While the leasing market continued to recover, investors remained cautious given the large supply expected to enter the market over the next few years. Transactions continue to be limited to domestic self-use buyers. Domestic insurance companies continue to seek investment opportunities.

Outlook: Leasing recovery likely to continue over the short term

  • Shanghai’s strong fundamentals will lead pent-up demand to continue to be released over the short term. Financial services firms, professional services firms, and tech companies will continue to look for expansion options. Pharmaceutical companies are expected to show increasing demand for office space.
  • In the short term, submarkets with strong performance will drive the rental recovery. But rental growth is expected to gradually stabilise over the next 12 months due to a substantial amount of supply expected to reach completion.

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

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