New Supply Wave Mutes Shanghai Office Rebound

Shanghai’s office leasing market saw core area absorption rebound in the fourth quarter of 2023 to reach 32,056 square metres (345,048 square feet), the highest reading of the year, but an influx of new supply boosted the Grade A vacancy rate to 15.2 percent in the central business district, according to Cushman & Wakefield.

In core submarkets, the average monthly rent dropped to RMB 280.20 ($39.47) per square metre in the final quarter of 2023 as the overall city average fell slightly to RMB 239.50, the agency said in its Office MarketBeat report. Suburban submarkets saw average rents ease to RMB 189.90.

More than 1 million square metres of new office space is set to enter the market in each of 2024 and 2025, with the suburban area dominating at more than 1.5 times the new space presently scheduled for the core area, Cushman said.

“In terms of submarkets, fringe Xuhui will see the largest number of completions, with several landmark projects entering the market,” said Shaun Brodie, Cushman’s head of research content for Greater China.

Project Completions Continue

The influx of new projects throughout 2023 prompted Shanghai’s overall vacancy rate to rise to 21.8 percent, but more active leasing activity at new projects should see citywide vacancy trend downward, the report said.

Among significant office projects completing in 2024, Vanke’s Xuhui Vanke Centre III in fringe Xuhui leads with 190,000 square metres of new space, followed by Shui On Land’s CPIC Xintiandi Commercial Center T1 in new Huangpu with 122,400 square metres.

Also due to open is Keppel Land’s Park Avenue Central, bringing 98,952 square metres of new supply to core Jing’an. The 180 metre (590 foot) office tower is the centrepiece of Singapore-based Keppel’s first mixed-use development in Shanghai.

“New supply will provide tenants with more choices, while driving tenants’ willingness to relocate,” Brodie said. “Against the large amount of supply, the office market will remain tenant favourable in 2024.”

Volkswagen Loads Up

Key leasing transactions in China’s commercial hub during the fourth quarter were led by Volkswagen, with the car maker taking up 12,000 square metres at The Gate in Minhang, and the Grandall Law Firm, which relocated to 10,000 square metres at Suhe Centre in fringe Jing’an.

By sector, professional services firms led leasing deals by area with a 20.5 percent share of total transactions in the quarter, followed by finance (19 percent) and manufacturing (18.9 percent). Tech/media/telecom took fourth place with an 18.8 percent share, while retail/trade was also significant at 15.5 percent.

Financial, professional services and TMT tenants will consistently dominate leasing demand in the year ahead, Brodie said.