Office rents set to ease on ample supply
Print Edition
GRADE A office rents in the Pudong New Area are expected to be the shining spot in a city where office space is generally in abundant supply and rents signal a downward trend.
“In Pudong, we anticipate strong demand from domestic financial tenants to drive rental growth this year,” said Eric Xin, national director for markets at Jones Lang LaSalle. “We expect rents to remain flat in Puxi, though domestic companies are expected to increase their activity there, partially offsetting subdued demand from multinationals.”
The two sides of the Huangpu River began to diverge in rental returns last year amid strength in Grade A office space but weakness elsewhere in the market.
Grade A office rents in Pudong in the fourth quarter rose 2.4 percent from the previous three months to 9.40 yuan (US$1.53) per square meter per day, mainly due to strong demand from domestic financial firms and limited supply.
In Puxi on the west bank of the Huangpu, rents slipped 0.2 percent to 9.10 yuan per square meter per day. The weakness was attributed to less demand from cost-conscious foreign companies, according to a Jones Lang LaSalle report.
Citywide, about 410,000 square meters of new office space was completed last year. That was about half of the annual average volume during 2011 and 2012. Net absorption stood at 490,000 square meters last year, 14 percent below the long-term historical average since 1996, separate research by CBRE concluded.
Looking ahead, Shanghai’s Grade A office market is expected to experience a spike in supply, with new completions reaching a record 1.29 million square meters, if all pipeline projects are delivered on schedule.
Four-fifth of the new supply will be in Puxi, according to Sam Xie, director of CBRE research in Shanghai, with many contracts signed during the previous leasing boom in 2011 due to expire. “While increasing demand will partially offset pressure from the supply spike,” Xie said, “the vacancy rate in 2014 is set to rise and the market will still remain tenant-favored.”
A low pre-commitment rate for most upcoming projects may signal more intense competition among landlords to snag high-profile tenants, he said. Completion of projects in more decentralized locations such as the Hongqiao Central Business District will provide more options for cost-sensitive companies.
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