APPD Market Report Article


February 22, 2024

Daniel Yao, Head of Research, China


RMB 8.62


Renewals continue as tenants remain conservative

  • A sluggish recovery left overall absorption at 99,000 sqm in 4Q23 and 381,700 sqm for 2023 as a whole. While inspections rose, tenants remained cautious, and many chose to renew leases rather than seek new spaces. Meanwhile, the recent decline in rents led some Grade B tenants to seek opportunities to upgrade to Grade A buildings. 
  • Annual net absorption in the CBD reached only 24,700 sqm, mainly as a result of tenants’ cost-control strategies. In the Decentralised market, net absorption was 79,000 in 4Q23 and totalled 357,000 sqm for the full year. Domestic financial services and professional service firms were resilient, and media companies continued to seek opportunities.

Three projects deliver 421,000 sqm over the fourth quarter

  • One project delivered 144,200 sqm to the CBD market in 4Q23, contributing to the 448,800 sqm of CBD supply for the whole year. The new supply led CBD vacancy to rise to 14.9%, up 1.3 ppts q-o-q and up 4.7 ppts y-o-y. 
  • In the Decentralised market, two new completions added 276,000 sqm in the fourth quarter. Decentralised supply for the full year reached 1.13 million sqm, pushing the vacancy rate to 29.8%, up 1.3 ppts q-o-q and up 5.3 ppts y-o-y.

Rents further decrease amid large supply and slow recovery

  • CBD rents declined 2.8% q-o-q and 5.7% y-o-y. Facing pressure from new supply and competition from lower rents in nearby Decentralised areas, landlords of ageing buildings and projects with high vacancies further lowered rents to attract and retain tenants. 
  • Some Decentralised-market landlords have grown more willing to adjust prices and provide incentives, in order to navigate an intensely competitive market with large waves of supply that frequently put the market under rent pressure. Decentralised rents declined 3.3% q-o-q and 7.6% y-o-y. 

Outlook: Market to remain tenant-favourable over the near term

  • We expect the market to recover at a slow pace, with tenants being cautious with leasing decisions. The ongoing supply wave is expected to continue into 2024, further dragging on landlord sentiment. As a result, rents should decline further in the short term.
  • With rents falling, we expect upgrade demand to become more prominent as the market continues to favour tenants. The government is likely to roll out more measures to boost economic growth and stimulate office demand. As companies regain confidence, we expect that the recent wave of inspections will begin to translate into new office requirements. 

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

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