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Retail and office to benefit as residential market cools
By Regina Yang |
May 15, 2012, Tuesday
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Print Edition
Print Edition
SHANGHAI'S economic growth slowed in the first quarter of 2012 to 7.0 percent from the previous year's 8.5 percent. The government showed no sign of lifting the cooling measures on the residential market. In the first quarter, the government confirmed that even non-local residents who have lived in Shanghai for at least three years are not permitted to purchase a second home.
As these measures continue to deter residential investment, office and retail space will continue to take its place in the city. In the residential sales market, as buying demand continued to decline, both transaction volume and sales prices plunged in the first quarter, down 13.6 percent and 3.2 percent year on year respectively.
However, luxury projects fared well where price reductions were made, such as with the Hysun project in Xuhui and Star-River in Pudong. On the policy front, the authorities made a few clarifications, but there leaves little doubt. We can expect to see more price reductions, even in the luxury market.
Economic growth in Shanghai may have slowed in the first quarter, but foreign direct investment continued to increase to US$3.33 billion, 29.2 percent more than a year ago. Increased FDI and strong demand from the professional services, manufacturing, Internet and trading industries led to an active office leasing market, with a number of large transactions for floor plates over 10,000 square meters.
This, combined with the fact that commitment rates of most pre-leasing office buildings have reached over 50 percent, have kept the city's Grade-A office vacancy rate at a low level of 6.7 percent. With limited new supply and high-commitment rates for new buildings, we can expect to see rents continue to increase.
The existing restrictions on home purchase will remain the major hurdle for the growth of demand. Considering this, we expect luxury home prices to continue to fall by 10 percent in the rest of 2012. The office investment market, along with the retail market, continues to receive more attention from investors as cooling measures deter interest in the residential sector.
Luxury brands accelerated the pace of their store openings in prime areas, whilst secondary and suburban areas quickly become important to the growth of the retail market. There's no doubt that the office and retail sectors are benefiting from the cooling of the residential market.
Regina Yang is Shanghai's Director of Research at property consultancy Knight Frank.
As these measures continue to deter residential investment, office and retail space will continue to take its place in the city. In the residential sales market, as buying demand continued to decline, both transaction volume and sales prices plunged in the first quarter, down 13.6 percent and 3.2 percent year on year respectively.
However, luxury projects fared well where price reductions were made, such as with the Hysun project in Xuhui and Star-River in Pudong. On the policy front, the authorities made a few clarifications, but there leaves little doubt. We can expect to see more price reductions, even in the luxury market.
Economic growth in Shanghai may have slowed in the first quarter, but foreign direct investment continued to increase to US$3.33 billion, 29.2 percent more than a year ago. Increased FDI and strong demand from the professional services, manufacturing, Internet and trading industries led to an active office leasing market, with a number of large transactions for floor plates over 10,000 square meters.
This, combined with the fact that commitment rates of most pre-leasing office buildings have reached over 50 percent, have kept the city's Grade-A office vacancy rate at a low level of 6.7 percent. With limited new supply and high-commitment rates for new buildings, we can expect to see rents continue to increase.
The existing restrictions on home purchase will remain the major hurdle for the growth of demand. Considering this, we expect luxury home prices to continue to fall by 10 percent in the rest of 2012. The office investment market, along with the retail market, continues to receive more attention from investors as cooling measures deter interest in the residential sector.
Luxury brands accelerated the pace of their store openings in prime areas, whilst secondary and suburban areas quickly become important to the growth of the retail market. There's no doubt that the office and retail sectors are benefiting from the cooling of the residential market.
Regina Yang is Shanghai's Director of Research at property consultancy Knight Frank.
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