Shanghai’s Grade A office market stabilized a bit in the third quarter of this year after a 12-month softening, but significant improvement in market demand and rents should not be expected in the short term, according to a report by international real estate services provider CBRE.
The reason is an upcoming peak in supply.
In the next six months, 380,000 square meters of new Grade A office space will be released to the market, more than 80 percent is in Puxi, according to CBRE data.
“Despite positive impact by benign economic signals upon office demand, we believe the market will remain tenant-favored given the quantum of pipeline,” said Sam Xie, director of CBRE research, Shanghai.
“The projected supply peak after the second half of 2014 will probably persuade some occupiers to consider postponing their expansion plans to obtain better leasing options and terms.”
Shanghai Point, a 120,000-square-meter landmark commercial development in the North Bund area, will become available in the second half of next year. It will introduce 68,000 square meters’ Grade A office spaces, mainly targeting companies in the shipping and logistics industries, according to Shanghai Hongtai Real Estate Co Ltd, developer of the project.
By the end of September, the average asking rent of Grade A office buildings stayed flat at 250.8 yuan (US$41) per square meter per month, up marginally by 0.3 percent from the previous quarter. The overall vacancy rate, meanwhile, shed 0.7 percentage points to 7 percent.
A recent forecast by DTZ showed that the city’s Grade A office market is likely to remain flat in the last quarter of this year, with rental growth to range from -1.0 percent to 0.5 percent.
The market also saw a continuing trend of decentralization during the three-month period, amid generally suppressed occupier demand due to slow economic growth globally.
A growing number of corporate tenants are showing willingness to move out of the traditional CBD areas like Huangpu to neighboring but less expensive districts such as Zhabei, Yangpu and Hongkou, industry analysts said.
In particular, tenants from the logistics, manufacturing and pharmaceutical sectors are displaying interest in relocating to decentralized areas to secure contiguous space at lower costs, a separate report released by Jones Lang LaSalle has found.
On the supply side, three new projects in the decentralized market totaling nearly 150,000 square meters were completed around the city between July and September, Jones Lang LaSalle data showed.
They include Magnolia Plaza (31,500 square meters) and Riverside International Plaza (52,900 square meters) in Puxi and Lujiazui Century Financial Plaza (65,300 square meters) in the Pudong New Area.