APPD Market Report Article


February 28, 2023

Daniel Yao, Head of Research, China


RMB 9.17


Demand subdued as tenants remain conservative

  • Shanghai’s office market was slow amid the continued impact of COVID-19, with overall net absorption coming in at about 95,000 sqm for 4Q22 and 523,900 sqm for 2022 as a whole. Shanghai’s Q2 outbreak led many tenants to delay leasing decisions, and many continue to take a conservative ‘wait-and-see’ approach. 
  • Annual net absorption in the CBD was about 16,600 sqm, while decentralised absorption recorded about 507,200 sqm. The majority of demand came from domestic firms and companies in traditional sectors like finance, professional services, and TMT. New energy vehicle (NEV) firms and life science companies also continued to seek new opportunities. 

Three new projects deliver 161,800 sqm

  • In the CBD, two projects delivered about 97,500 sqm to the market in Jing’an. New supply led CBD vacancy to end the year at 10.2%, up 1.1 ppts q-o-q and up 2.3 ppts y-o-y. 
  • One decentralised project delivered 64,351 sqm to the market in 4Q22. The decentralised market saw robust demand in space take-up for headquarters and new completions delivered in popular submarkets. This led the decentralised market vacancy to decrease -0.5 ppts y-o-y, ending the year at 24.5%. 

Overall rents continue to edge down as market activity slows

  • CBD rents declined 0.9% q-o-q as recovery from the year’s COVID-19 flare-ups remained slow. Rents recorded RMB 9.2 per sqm per day in 4Q22 due to continuing rental declines despite strong growth in 1Q22. Landlords of higher vacancy projects were more negotiable on rents, while landlords of premium buildings or those with higher occupancy stayed resilient. 
  • Decentralised rents declined 1.3% q-o-q and 1.6% y-o-y as slow leasing and lease terminations by SMEs impacted landlords’ rental expectations. That said, active submarkets like Qiantan and Xuhui Bund stood out for their resilience.

Outlook: A slow recovery, to be followed by a pickup later in 2023

  • In the short term, demand is expected to remain slow as the lifting of COVID-19 control measures will likely lead to a surge in infections that limit market activity and further impact sentiment. Once Shanghai moves past the surge’s peak in 2023, tailwinds from reopening and favorable policies to boost tenants’ confidence are expected.
  • Supportive measures including financial stimulus, additional high-standard opening-up, and efforts to attract FDI will help boost economic growth and stimulate office demand from domestic and foreign firms. Combined with a lessening impact from the pandemic, these measures should help spur a stronger rebound in 2H23. 

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

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