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Views split over office sector

ALTHOUGH property investors have increasingly been active in the real estate market in Shanghai over the past few months, two experts differ how this will affect the office segment of the market.

"Prime office buildings in the city will continue to be one of the major investment targets in 2009 while retail properties will also be favored among investors," said Andrew Zhu, senior managing director of CB Richard Ellis's China operations. "The short-term downward correction in the prime office market won't deter investors but they have adopted a more cautious approach."

Prime offices accounted for 21.8 percent of total overseas en-bloc acquisitions in Shanghai last year, second only to mixed-use developments, CBRE statistics showed.

A supply glut and a worsening global financial turmoil have slashed prime office rents across the city since the fourth quarter of last year. Asking rents by prime office landlords in the city continued to fall by an average 6.8 percent in the first two-and-a-half months compared to the end of December, while contracted rents dropped more quickly - by as much as 20 percent in some particular projects - CBRE said.

But Jim Yip, local director of investments at DTZ, another major real estate services provider, didn't agree.

"It could be hard to find buyers for prime office buildings this year as the market is currently plagued by a glut of supply as well as a shrinking demand," Yip said. "The correction in the local office market won't likely end soon and the market won't recover fully over the next two or three years."

En-bloc acquisitions by overseas investors are expected at only 5 billion yuan (US$732 million) this year in Shanghai, compared to the 15 billion yuan achieved in 2008, DTZ predicted earlier this month.

However, Yip agreed that retail properties, especially those in prime locations and with good property management, will be favored by real estate investors.

In Shanghai, retail sales are expected to climb 12 percent from 2008 to 506 billion yuan this year, the Shanghai Commerce Commission predicted last month, which will have a positive impact on rents in the city's retail properties.


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