APPD Market Report Article

Shanghai

November 29, 2022

Daniel Yao, Head of Research, China

1.9%

RMB 9.24

Decline
Slowing

Tenants remain conservative despite uptick in leasing

  • After the COVID-19 outbreak in the spring, Shanghai’s overall net absorption rose to 104,000 sqm. In the CBD, diversified tenant demand helped the market remain stable. Financial services and professional services companies continued to drive leasing activity. Renewals also increased as tenants remained conservative on the whole.
  • Decentralised net absorption reached 129,000 sqm. Enquiries continued to be concentrated in popular submarkets such as Qiantan and Xuhui Bund. Firms in new strategic sectors such as life sciences and new energy vehicles supported the leasing momentum, and demand from financial services and TMT companies remained resilient.

Three new projects deliver 277,800 sqm

  • In the CBD, one new building delivered 115,000 sqm to Xujiahui submarket, leading overall CBD vacancy to rise 1.7 percentage points (ppts) q-o-q to 9.1%. This new building is expected to upgrade Xujiahui’s business atmosphere and maintain the submarket’s competitive position in the Puxi CBD.
  • Two decentralised projects with a combined GFA of 163,000 sqm reached completion in the quarter. High pre-commitment rates and active leasing in recent completions led decentralised vacancy to edge down 0.1 ppts q-o-q to 25.0%.

Overall rents edge down as landlord sentiment softens

  • In the CBD, overall rents edged down by 0.7% q-o-q as lingering effects of the spring COVID-19 outbreak caused landlords to be more amenable to rent negotiation, in order to achieve higher occupancy. Some experienced landlords have proactively adjusted leasing strategies in order to maintain competitiveness.
  • Rents in the decentralised market continued to diverge between buildings, with landlords in high vacancy submarkets providing incentives such as rent-free periods. In this tenant-favourable market, rents fell by 1.3% q-o-q. Landlords’ rental expectations were also impacted by recent slow demand and a large upcoming supply.

Outlook: Market to favour tenants as firms defer leasing decisions

  • With tenants remaining conservative and prolonging decision-making periods, time will likely be needed for demand to recover. That said, the expanding Grade A office footprint for new strategic industries like life sciences and advanced manufacturing may help speed the pace of recovery.
  • Recovery in rents is expected to be slow, as tenants remain cautious and the market faces a large upcoming supply. Landlords are expected to continue to be conservative, with many likely to lower rental expectations, particularly in high-vacancy submarkets.

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

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