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Shanghai's offices feel pinch

SHANGHAI'S Grade A office market has continued to suffer declining rents and mounting vacancies in the second quarter of this year as the global financial crisis deepens.

Average rentals in the city's Grade A office buildings fell 9 percent quarter on quarter to 7.1 yuan (US$1.04) per square meter per day as of June, while vacancies climbed by 1 percentage point to 14.1 percent on average during the same period, the world's leading real estate services provider, Colliers International, said yesterday.

"While the city's residential market has witnessed notable rebounds over the past few months, the local Grade A office market is still far from recovery due to slack demand from tenants coupled with abundant new supplies," said Hingyin Lee, director of research and advisory for Colliers' East China operations. "We don't expect any major revival of the office market at least until the end of next year."

Rentals fell 13.3 percent on average in Pudong, while a 5.9 percent decline was registered in Puxi during the three-month period, according to the company's research.

Rentals in Lujiazui dropped 13.5 percent to 7 yuan per square meter per day in the second quarter, mainly due to sharp rental declines in several Premium Grade A buildings and new completions. It was the first time that rentals in Lujiazui fell below the city's overall average, Colliers said.

Premium Grade A offices suffered larger setbacks compared with ordinary Grade A buildings.

Vacancy rates at Premium Grade A offices soared to 18.8 percent on average in the second quarter while those at ordinary Grade A buildings rose to 12.5 percent. The rental gap between the two is expected to narrow further in coming quarters.

For the second half, the firm said the downturn of the Grade A office market was expected to continue. However, new supplies in the second half would be abundant as the completion of the HSBC Building, 21st Century Tower and Poly Plaza will add more than 150,000 square meters of Grade A office space to the market.

By the end of this year, average rentals at the city's Grade A office buildings might retreat to 6 yuan per square meter per day, while vacancies could exceed 20 percent on average.


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