Shanghai Office Rents Slide For 12th Straight Quarter

With nearly a quarter of the city’s space standing empty, grade A office rents in Shanghai fell for a 12th straight quarter in the first three months of this year, as international firms pull back on leasing and local demand stays weak.

Vacancy in grade A buildings across Shanghai climbed 0.6 percent points in the first three months of this year, compared to the October through December period, to reach 23 percent, according to a recent report by Cushman & Wakefield. That figure was up 1 percentage point from a year earlier.

With more space vacant and a surge of new buildings on the way, rents continued a slide which began in the second quarter of 2022, falling 3 percent in the January through March period to a city-wide average of RMB 216.6 ($30) per square metre per month, Cushman & Wakefield data showed. Those leasing rates were down 9.1 percent from the first quarter of 2024.

“Against a backdrop of further global uncertainty and transformation, addressing insufficient effective domestic demand remains a key challenge,” said Shaun Brodie, head of research content of Greater China at Cushman & Wakefield.

Tenants Look to Second-Tier Locations

With approximately 4 million square metres (37.2 billion square feet) of grade A office space vacant at the end of March, and with a crop of new buildings set to bring more than an additional million square metres online this year, Cushman & Wakefield expects rents to continue to decline in 2025 as the city’s office market “remains in a peak supply period”.

Cushman & Wakefield pointed out that vacancy rates have continued to rise in core areas such as Jing’an and Huangpu districts and the Lujiazui financial hub, while tenants leased up a net 60,000 square metres of space in areas with cheaper rents such as Putuo, Hongkou, and Yangpu districts.

According to the company’s tally, emerging office hubs with more affordable rents accounted for at least 57 percent of citywide net absorption in the January to March period.

The Nanjing West Road area, which has traditionally been one of Shanghai’s most sought-after commercial hubs, saw average rents fall 12 percent from a year earlier to RMB 280.4 per square metre per month, while vacancy rose to 19.8 percent from 14.7 percent over the same period.

Lujiazui remained more resilient with rents sliding 3.8 percent year-on-year to RMB 301.2 and vacancy rising 2.9 percentage points to 13.6 percent.

While less-expensive emerging areas attracted tenants, JLL emphasised that some tenants formerly leasing in Grade B buildings or in suburban areas have upgraded to Grade A projects in the first quarter as higher grade offices have become more affordable.

“Landlords continue to take rental concessions and offer attractive incentives in exchange for occupancy amid large supply influx in Shanghai’s office market,” said Neo Huang, head of office leasing advisory for Shanghai and head of retail for East China at JLL.

Foreign Takeup Shrinks

Decreased activity by international players has contributed Shanghai’s office slowdown, with foreign companies’ share of lease renewals and expansions falling to 38 percent of the citywide total during the first quarter from 52.4 percent a year earlier, according to Cushman & Wakefield.

Key transactions by foreign-invested companies in the period included Japanese chemicals and materials conglomerate Asahi Kasei’s renewal of a 3,000 square metres lease in Sun Hung Kai Properties’ Shanghai International Commerce Center (ICC) in Xuhui district and US fund manager Franklin Templeton’s China joint venture renewing a 2,600 square metre lease in the Hong Kong developer’s Shanghai International Finance Centre (IFC) Phase II project in Lujiazui.

Led by fast-moving consumer goods companies, the retail and trade sector was a key demand driver in the first quarter, accounting for 19.4 percent of grade A office space leased. The professional services sector remained active, accounting for 17.3 percent leased area.

The financial sector showed signs of leasing demand recovery, Cushman & Wakefield said, with expansions by fund managers, securities houses, and insurance firms pushing up the sector’s share of leasing activity to 15.3 percent from 8.4 percent a year prior, although still representing a dip from the 15.6 percent slice the industries contributed in the fourth quarter.

Surge in Supply

Contributing to Shanghai’s rising vacancy was 307,287 square metres of Grade A office space added to the market by developers in the first three months of 2025, up 34 percent compared with the fourth quarter, according to Cushman & Wakefield.

With the new supply brought online in the first quarter equivalent to about 39 percent of new office space added to the city’s supply in all of 2024, Cushman & Wakefield expects Shanghai’s grade A office market to remain in “a peak supply period” through 2025, further driving down rents.

Colliers now predicts that Shanghai office rents will continue to slide through 2027 after forecasting one year ago that the market would rebound in late 2025.

“With quality projects continuing to enter the market, landlords are advised to accurately gauge the demands of tenants and explore new development modes,” Colliers said in a separate report released late last month. “How to stabilize the vacancy rate and rent is a huge challenge for the market.”

The consultancy predicts that developers will launch 1.26 million square metres of office space into the market this year, with core areas accounting for 32 percent of that new supply and the remainder located in decentralized areas.

New projects that are expected to be completed this year include Sun Hung Kai’s Three ITC Tower B, which will add 206,283 square metres to the supply in Xuhui district’s Xujiahui area and Crystal Bridge, a commercial complex developed by Tishman Speyer, Xinchangning Group and Mitsubishi Estate which will introduce 160,000 square metres of office to Changning district.