I have often wondered how the Beijing and Shanghai office markets compare to one another and I am sure many of you have too (I know because some of you have asked me!). So I travelled from China’s capital city to the Pearl of the Orient to see for myself:

• Geographical spread: The entirety of Shanghai, including outlying areas, is actually the same size as Beijing, but the key difference in Shanghai is that the core areas are very compact. West Nanjing Road and Lujiazui, arguably the most prominent office sub-markets in Shanghai, are closer than the Beijing CBD is to Finance Street. In fact, the Lujiazui subway station is only four subway stops away (or a ten-minute ride) from West Nanjing Road, while Finance Street is eight stops away (a 20-minute ride) from the CBD. These distances may seem trivial on paper, but can have a significant effect on tenants’ location choices.

• Demand: There is significant overlap in tenant profiles across these two cities, but there are far more retailers and manufacturers that lease Grade A office space for their marketing and headquarters functions in Shanghai. This is because of Shanghai’s role as the centre of a very large manufacturing-oriented city-region. Conversely, Beijing has a larger presence of energy, automotive and IT companies (you can read about the latter two in my last post). Both cities have very tight markets currently in central areas. However, Shanghai has a large decentralised Grade A market – which Beijing does not – where vacancy rates are higher.

• Investment: Institutional investors have been much more active in the Shanghai market, whereas owner-occupiers dominate the Beijing investment market. There is strong interest from both domestic and foreign institutional investors for assets in Beijing, but they usually find themselves priced out. Domestic owner‑occupiers generally hold buildings longer and pay less attention to investment yields. As such, developers have been able to sell assets in Beijing to end users at prices well in excess of what institutional investors are willing to pay.

• Future development: Future sub-markets are in the early stages of planning and development in both cities: Lize in Beijing and Qiantan in Shanghai. Both are planned to be new financial districts that offer room for more development. However, differences in the approach to developing these two areas were readily apparent during site visits. Despite having sold numerous plots in Lize, roads in the area have not been paved yet, and some of the land has not been cleared. Meanwhile, Qiantan has sold only one plot of land, but the roads have already been paved, and plots are fully cleared. By far the majority of plots in Lize have been sold to domestic investors and end users, while the Qiantan planning committee has encouraged local-foreign partnerships.

These are only a few of the differences I observed on my trip, yet they are central characteristics of these office markets that are likely to continue shaping them in different ways for years to come.

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