Skip Ribbon Commands
Skip to main content

News Release


Office Demand Strengthens in Puxi and Pudong; Three New Retail Centers Officially Open

According to Jones Lang LaSalle 2010 Year-End Property Review

Rents for office space in Puxi grew by 7.1% q-o-q, the fastest quarterly increase since the first quarter of 2005. “Continued strong demand from multinational companies and a limited amount of available space is leading to a rapid rise in rents in Puxi,” noted Anthony Couse, Managing Director of Jones Lang LaSalle Shanghai. Retail leasing activity slowed this quarter, but available space remained very limited with the prime retail vacancy rate staying under 1.0%. Sales volume in the residential mass market fell in October and November after newly announced tightening policies at end-3Q10, but sale volume began to recover again in December. Meanwhile the luxury residential market remained quiet throughout the quarter. Foreign investors continued to show strong interest in retail and office properties for en-bloc investment because of positive rent outlooks in both sectors. With demand remaining strong and vacant space in Shanghai’s non-bonded logistics market continuing to fall, non-bonded rents rose by 3.1% q-o-q.


Puxi rents rise 7.1% on strong demand.  Average Grade A rents grew at a quick pace across Shanghai in 4Q10, growing by 6.5% q-o-q to RMB 7.5 per sqm per day. Based on the strong demand from MNC tenant expansion, Puxi average rents rose to RMB 7.6 per sqm per day, representing a 7.1% q-o-q growth. This is the fastest quarterly increase rate observed since 1Q05. In Pudong, after a temporary slowdown in rental growth in 3Q10, this quarter showed a strong rental increase of 5.8% q-o-q, bringing the average rent to RMB 7.4 per sqm per day. Premium Grade A office rents reached RMB 8.7 per sqm per day in Puxi and 8.3 per sqm per day in Pudong, an increase of 5.2% q-o-q and 3.1% q-o-q, respectively.

Strong demand in Puxi from expansion and upgrades. The Puxi market experienced robust demand from multinational companies in the final quarter of 2010 as an increasing number of companies resumed expansion. Manufacturing and professional service firms were particularly active in upgrading or expanding in the market as a result of a new round of investment in their China businesses. For example, a foreign manufacturing company leased approximately 4,500 sqm in Wheelock Square, an 80% larger space than the tenant’s previous premises. Also, a foreign professional services firm expanded by 30% in their existing One Corporate Avenue location to occupy a new total of 4,000 sqm. Recently completed buildings are filling up because of the strong demand, with the commitment rate reaching about 80% in Henderson Metropolitan. Phase I of Wheelock Square is 100% leased, with the commitment rate for the entire building reaching approximately 50%. International Commerce Center (ICC), scheduled to be handed over in 2Q11, has already reached a pre-commitment rate of around 30%. In the decentralized Grade A market, CITIC Plaza on Hongkou district’s Sichuan North Road and New Richport Financial Centre Tower 1 near the Luwan District portion of the Expo site were handed over, adding a GFA of 162,467 sqm.

Pudong market surges ahead. In Pudong, after a temporary slowdown in leasing volume in the third quarter, the market showed strong demand from both overseas and domestic financial firms. For example, a domestic bank leased 1,000 sqm in One Lujiazui. Meanwhile, Bank of New York Mellon leased 3,000 sqm in Hang Seng Bank Tower, formerly known as HSBC Tower. In addition, the Pudong market continued to witness large leases from domestic companies in the Zhuyuan area. A domestic real estate firm and an IT company leased 6,000 sqm and 4,000 sqm in Hongjia Tower, respectively. Both were upgrades from lower-grade buildings. Grand Office Tower in the Zhuyuan area was completed this quarter, adding a GFA of 81,099 sqm to the market. The building was sold en-bloc to an SOE owner-occupier earlier in 2010.

2011 will offer significant new supply and substantial take-up. “Rents will continue to rise on both sides of the river throughout 2011,” said Mr Couse, “We expect Pudong rents to go up 10-15% in 2011 and Puxi office rents to rise 15% due to strong demand.”  In Puxi, four new buildings are expected to reach completion in the next 12 months, adding a total GFA of 221,593 sqm to the market. However, any rise in the market vacancy rate will be minimized by strong expansion and upgrade demand from MNC tenants and the steady preleasing progress of upcoming projects such as ICC. In Pudong, 758,392 sqm of new space will come on stream in 2011 with more than half of the newly completed supply being owner-occupied buildings.  Lettable space on the Pudong market will be readily absorbed due to the strong take-up from both domestic and foreign financial services firms, many of which are still growing their Pudong presence. The Pudong vacancy rate increase will be very limited, and landlords of low-vacancy buildings will continue to have significant pricing power.


Leasing activity slowed. Domestic tourist inflows slowed after the closing of the Expo on 31 October, although specific figures are as yet unavailable. The total number of new store openings was lower than the third quarter, and was more broadly based across different trades besides fashion. A few new stores such as the mid-market fashion brands Replay, Accessorize, I.T. and Levi’s opened in prime Puxi properties. The Media Markt consumer electronics chain from Germany opened its 13,000 sqm flagship store on Huaihai Road in the former location of Isetan, a Japanese department store. Market leasing activity entered a seasonal low point in the fourth quarter as retailers achieved their expansion plans for the year. Everlasting Spa, which already has more than a dozen outlets in Shanghai, will open an additional store in Pudong. Bio YaYa Medical Institute will add a Xintiandi location. F&B tenants and drug stores were also seen in transactions this quarter. The most notable new entrant to the Shanghai market was American Eagle Outfitters, which began preparations to open a store next to Gap on West Nanjing Road in Spring 2011.

Three new additions to Shanghai’s prime retail market. Average ground floor rents in the Shanghai prime retail market remained nearly flat this quarter at RMB 50.1 per sqm per day compared to RMB 49.9 per sqm per day last quarter. The market vacancy rate decreased slightly by 23 basis points to 0.7% due to additional take up in the Huaihai Road and East Nanjing Road precincts as well as 3 new projects being delivered virtually fully let.  One department store and two shopping malls were delivered this quarter, adding 136,500 sqm to Shanghai’s prime retail stock. Situated on Middle Huaihai Road next to Parkson Department Store, OPA Department Store is a 7,000 sqm trendy shopping destination targeting young girls with Japanese fashion brands. Xintiandi Style in Puxi and Shanghai ifc Mall in Pudong had their grand openings this quarter, officially adding 129,500 sqm to Shanghai’s prime retail stock.  Both malls have been successful with project leasing.  Shanghai ifc Mall reached a 100% commitment rate early this quarter while Xintiandi Style had only 5% of its total space still available for lease. Xintiandi Style, a trendy shopping destination that had its soft opening three months ago, now has three floors in operation. The remaining floor will have a supermarket as an anchor tenant. In the non-prime retail market, Joy City launched its soft opening in December. Located in Zhabei District near the Qufu Road Metro Station on Line 8, Joy City is positioned as a mid market shopping mall and has secured tenants including H&M, MUJI, Sephora, and CK.

Prime retail demand to remain solid. Looking ahead, leasing demand will resurge in 2011, with mid-market fashion retailers expected to be a major driver. "Around 316,000 sqm of prime retail space is scheduled to enter the Shanghai market in 2011, and most of the projects will be completed in the second half of the year, driving vacancy rates upwards,” said Eugene Tang, Head of Retail for Jones Lang LaSalle in Greater China. “However, rental growth is expected to continue in mature, established properties.”


Residential sales bouncing back. The government’s tightening measures announced at the end of September began to take effect in the fourth quarter. The sales volume of commodity housing in Shanghai’s primary market fell by 3% m-o-m in October, a traditionally busy season for home sales. Primary sales volume dropped a further 30% m-o-m in November as buyers reacted to the tighter regulatory environment. However, the sales volume rebounded in December as some owner-occupiers returned to take advantage of a market that favored buyers for the first time in 18 months. “Government policy still has not broken the market’s bias toward positive sentiment and as a result homebuyers are returning to the market as soon as they see that prices are not falling,” noted Michael Klibaner, Head of Research for Jones Lang LaSalle China. Even with the new tightening measures and decreased transaction volumes, prices of new commodity housing have grown slightly in recent months. The Shanghai government’s CREIS index showed that prices rose by 0.9% m-o-m in October and 1.3% m-o-m in November.

Quiet luxury sales market persists. As we expected in the third quarter, the luxury residential sales market remained quiet throughout the fourth quarter due to greater restrictions on mortgage loans for investors. This was evidenced by few transactions occurring in the quarter in luxury projects which we regularly monitor. For instance, 1 Xinhua Road in Changning District, Huashan Residence in Jing’an District and Tomson Riviera in Pudong recorded only one or two transactions each in 4Q10. There were no major luxury projects launching new units in the fourth quarter. Due to the lack of motivated buyers, developers continue to hold back new launches waiting for the market momentum to rebound. Several luxury projects, such as City Castle Phase II, Eight Park Avenue Phase II and Park View II further delayed new launches to 2011. Although the luxury sales market experienced another quiet quarter in 4Q10, developers and individual sellers in the secondary market still had few incentives to lower asking prices to spur sales. As a result, capital values of luxury apartments remained largely unchanged at RMB 55,397 per sqm in the fourth quarter.
In the luxury rental market, the conclusion of the Expo in October caused a decline in the leasing demand for short stays in 4Q10. However, this was offset by the growing demand for long stays from expatriates. MNCs, especially in the manufacturing and financial services industries, maintained strong expansion momentum. As a result, the average vacancy rate for luxury residential projects in Shanghai edged up by only half a percentage point from last quarter. In the luxury rental market, the growing demand for long stays strengthened landlords’ confidence, resulting in a 0.7% q-o-q rise in rents in the fourth quarter.

Tightening policies to remain into 2011. We expect that the current tight policy footing will continue into 2011, but end-user demand for housing will remain strong. The traditional post-Spring Festival buying period in March and April will be critical to gauge the market’s direction for the whole year. The supply of housing will continue to increase because of government policies, helping keep prices stable even with higher sales volumes. In the luxury sales market, ongoing speculation over the rollout of a real estate tax on residential properties and expectations of further interest rate hikes may weigh on buyers’ confidence. As such, we expect that the luxury sales market will remain subdued in 2011 as buyers are likely to persist with a “wait and see” attitude. However, developers of luxury projects may continue to wait the market out by delaying new launches until market sentiment picks up. We expect capital values of luxury apartments in Shanghai to remain stable in 2011 due to limited new supply in the pipeline. The gradual increase in expatriate deployments in Shanghai will further strengthen landlords’ confidence and support a positive rental growth in 2011.


Active investment market brings 2010 to a strong finish. Preliminary figures indicate that the total sales value of major transactions in Shanghai reached RMB 34.2 billion for the full year of 2010, up 17.2% y-o-y.  Interest in the retail and office sectors was very strong as demand and rental growth prospects in both sectors remain attractive. Foreign buyers (including Hong Kong) accounted for 72% of the transacted value, with domestic buyers claiming the remaining 28%. This is a significant reversal from 2009, when domestic buyers accounted for 88% of the transacted total. Investors from Hong Kong and Singapore were the most active buyers in the quarter, and the largest transaction by size was CapitaMall’s purchase of a 66% stake in the development of a mixed-use plot on Madang Road a few blocks south of Xintiandi. Shui On Construction and Materials purchased the non-office portion of 21st Century Tower in Lujiazui. Two large joint ventures were formed to develop projects in the city, emphasizing the rising popularity of these arrangements to spread risk between multiple investors.  Guangzhou R&F and KWG Property joined forces to complete development of California Place and Square in New Jiangwan City. Also, Nan Fung and Wing Tai joined forces to complete development of the third tower of Guoxin Seaview Garden in Pudong. Several office building transactions remain in the pipeline for the first half of 2011. Capital raised by international institutional funds was under increasing pressure to be deployed. Also, an influx of private investment capital from Hong Kong and Taiwan was on an aggressive search for suitable assets in 4Q10. Investment yields compressed slightly in the office and retail markets due to the expectation of further rent increases.  In the land market, the total value of non-Industrial land sales in Shanghai for 2010 reached RMB 141 billion RMB through 24 December. Additional land sales in the final days of the year will push the total value to over RMB 150 billion, up from RMB 97.6 billion in 2009.  This represents a year-on-year increase of over 53.7%.

Large pipeline of investment transactions for 2011. The strong momentum in the investment market will continue into 2011 with a large number of deals expected to close in the first quarter. Most of these are office building assets, and many of the buyers are likely to be foreign funds. The outlook for yields, which determine pricing of commercial real estate, remains very much dependent on interest rate movement.  A large rise in the central bank's interest rate will prevent further yield compression and may in fact cause yields to soften. If interest rates remain stable, further yield compression is likely during the first half of the year due to the robust outlook for rental growth.  Interest in the office and retail sectors will remain strong throughout 2011 from both domestic and foreign investors.



Non-bonded logistics market continues to tighten. Strong growth in domestic consumption continued to spur demand for non-bonded warehouse space. As a result, the non-bonded vacancy rate fell further, from 7.1% last quarter to 6.5% even with the completion of 20,148 sqm of new space in Phase II of the Shangfang Logistics Park project in the northern part of Songjiang Industrial Park. With limited space available in the market, tenants, whose current warehouses are nearing capacity, have begun to secure space in future projects. With continued strong demand and limited supply, non-bonded rents rose for the fifth straight quarter at 3.1% q-o-q. In the bonded market, demand for space continued to recover. Bonded rents grew by 3.5% q-o-q, increasing for the third consecutive quarter.   

Business Parks

Agricultural R&D to be a new source of demand.  Shanghai, as well as the rest of China, is in the early stage of a surge in agricultural research and development centers.  More demand is coming into the business park market for foreign enterprise participation in R&D and/or production related to the increase of agricultural outputs. Policy goals for the next five years will place special attention on the agricultural value chain in order to ensure food security and self-sufficiency for the country. This is due to the rapid pace of development of arable land in China’s prime agricultural areas.  R&D activities will focus on intensification of agricultural output yields, including biotechnologies and fertilizers.  The demand for agricultural research facilities, whether through lease or build-to-suit, is on the rise.  Recently Amway announced its intentions to develop a botanical R&D center to expand their R&D efforts in China. Meanwhile, the overall business park property market in Shanghai continues to experience strong demand, particularly from the fine chemicals and pharmaceutical industries.  Newly completed properties are entering the market at 10-15% higher rental rates than the market average due to higher quality construction.


Companies remain involved in site selection.  Expansion by foreign manufacturing firms continued in full force through year-end, providing a strong pipeline of upcoming deals in the Yangtze Delta Region.  Relocation out of Shanghai into neighboring provinces continued to be a key activity in the manufacturing sector. However, land supply limitations in neighboring Jiangsu province mean that some expansion requirements may not be easily accommodated.