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Office market prepares for a tough 2009

LANDLORDS of the city's office buildings are set to face a gloomy and hard time for the rest of the year as more availability coupled with slack demand are dragging rents further southward.

"Office rents in all areas are now under pressure and the overall level could fall by as much as 25 percent to 30 percent over 2009 without notable signs of recovery," Tim O'Connor, senior director of commercial services at CB Richard Ellis, a global real estate services provider, said.

"The original forecast by many industry research bodies was between 15 percent and 18 percent," O'Connor told the Real Estate Market Forecast 2009 held yesterday by the American Chamber of Commerce in Shanghai.

The vacancy rate at Shanghai's Grade A office buildings has tripled in the past year when the city witnessed the biggest Grade A office supply in its history when a total of 837,000 square meters flooded the market, with 619,000 square meters located in Pudong New Area, according to earlier statistics released by major industry research and service provider Savills Property Services (Shanghai) Co Ltd.

The supply glut will continue at least through 2010 as another 754,000 square meters of space are set to come onto the market in 2009, according to Savills, which also predicted earlier that overall rents across the city would drop by as much as 15 percent for the whole year.

O' Connor also said that despite rent declines in prime areas, the trend of decentralization by many companies which have to trim operational costs amid shrinking budgets will probably continue this year.

In fact, rents have begun to decline in the city in all office sectors since the third quarter of 2008, with the exception of Premium Grade A buildings in Puxi. But they soon joined the rest of the market and dropped 12 percent in the last quarter, according to Jones Lang LaSalle, another major real estate services provider.


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