Corporate Avenue II Building 5 was added to the Puxi market
Three of the major real estate consultancies issued quarterly reports on Shanghai’s office market this week, and the consensus is that Pudong rents are continuing to rise to averages of between RMB 9.2 to RMB 9.6 per square metre per day, while excess supply is holding down rentals west of the river.
In reports issued by JLL, Colliers International and Knight Frank, all three agencies saw a continuing shortage of supply, combined with strong demand from China’s finance sector, driving up grade A office rents.
Pudong Rents Averaging RMB 9.6 Per Sqm Per Day
JLL’s research team had the highest figures for rents in Pudong, finding that rates for grade A space had increased 1.6 percent compared to the previous quarter, to reach RMB 9.6 per square metre per day. Explaining the company’s findings, Anny Zhang, head of Pudong Markets for JLL Shanghai said,“In the Pudong CBD, strong demand from domestic companies continued to pursue limited available space, pushing vacancy down to 3.5 percent, marking the lowest level since 4Q 2007.”
Knight Frank’s appraisal of the market came in slightly lower, recording that in Pudong – the Lujiazui area in particular – due to limited supply and strong demand from the financial sector, average rents remained steady at RMB 9.2 per sqm per day. However, the UK-based consultancy saw the vacancy rate dropping 2.2 percentage points quarter on quarter to 1.5 percent.
According to Colliers view of the market, the average rent in Pudong grew by 2.0 percent in the first quarter compared to the final period of 2013, also reaching RMB 9.2 per square metre per day by March 31st.
Puxi Rents Averaging as Low as RMB 8.8
On the western side of the Pujiang, Knight Frank noted two new Grade-A office buildings being added to tenants’ location options in the city’s traditional downtown area. The Shanghai Arch in Changning district (110,000 sqm) and the premium Grade-A Corporate Avenue Phase II Building 5 near Xintiandi (29,500 sqm) were said to bring a total of 139,500 square metres of new space into play.
Accordingly the agency estimated that the average rent in Puxi dropped 2.2 percent quarter on quarter to RMB 8.8 per square metre per day. However, despite the new supply of space mentioned above, Knight Frank found that the average vacancy rate increased a slight 0.8 percentage point quarter on quarter to 5.5 percent.
JLL found quiet leasing demand in Puxi which the company’s research team linked to a mild, 0.9 percent drop in rents from the previous quarter to RMB 9.0 per square metre per day.
Colliers, however, priced the Puxi market a bit lower than JLL, but at the same rate as Colliers, estimating average rents climbed 0.2 percent from the previous quarter to RMB 8.8 per square metre per day.
Outlook for 2014
For the rest of the year, Colliers found little for property investors to fear, predicting that asset performance will remain stable, with both rents and capital values staying flat.
However, Knight Frank foresees a surge in new office building openings during 2014 – more than 1.5 million square metres bringing down Puxi rents another 2 percent by the end of the year, while Pudong will be less effected by the new influx of buildings and see rents continue to climb.
JLL remains optimistic that increasing demand from domestic companies for grade A space will support continued rental growth in 2014. Despite the new supply slated for Puxi, the agency believes that the western side of the river will benefit from spillover demand from Pudong as occupiers fail to find space in Lujiazui’s crowded market.
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