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News Release


Pudong Grade A office rents surpass Puxi rents for first time since 3Q10; E-commerce companies fuel demand for logistics space.

According to Jones Lang LaSalle First Quarter Property Review

Overall rents in Shanghai’s Grade A office market remained flat at RMB 8.9 per sqm per day this quarter. “Pudong rents continued to grow at a steady pace this quarter,” commented Anthony Couse, Managing Director of Jones Lang LaSalle Shanghai. “As a result Pudong’s Grade A market rents surpassed Puxi rents for the first time since the third quarter of 2010.”  In the retail market, three prime-area projects opened fully occupied this quarter, but vacancy rates began to edge up in the decentralized market. New tightening policies announced in the residential market led to a surge in secondary market transactions, while the high-end primary sales market remained subdued as discounting was rare. In the industrial market, the rental performance of Greater Shanghai’s non-bonded logistics market remained robust. This was most apparent in Shanghai’s satellite cities such as Kunshan and Jiaxing. In addition, the first quarter saw an increase in activity in Shanghai’s en-bloc investment market as several office, retail and industrial transactions were closed.


MNC demand shows early signs of recovery in Puxi. Seasonality combined with slowly improving sentiment about the broader Chinese economy contributed to an increase in the number of new inquiries in the office market following the Chinese New Year holiday. MNCs in Puxi appear to be more optimistic about the market, although at present leasing volume remains persistently low as it takes time for inquiries to become deals.  Retailers and pharmaceutical tenants remain the two sectors that have maintained the strongest level of demand. In Pudong, financial services remained active, although available expansion space in the core-CBD was limited. As a result, some tenants have looked to non-core areas to satisfy space requirements. SinoPac, a Taiwan-China JV bank, leased approximately 2,000 sqm in Lujiazui Fund Tower, for example.

Average Pudong market rents pass Puxi rents for first time since 3Q10.  Rents continued to grow steadily in Pudong this quarter, rising by 1.3% q-o-q. Meanwhile in Puxi, rents declined slightly by 0.3% as the majority of landlords held rents flat in spite of weak demand and new supply which reached the market this quarter.  As a result of these movements, average Pudong rents grew to a higher level than Puxi rents for the first time since the third quarter of 2010.  In the Premium Grade A market, rents remained flat this quarter at an overall market average of RMB 10.6 per sqm per day. Overall decentralised rents maintained steady growth this quarter, increasing by 1.5% q-o-q as net absorption continued to be strong in decentralized areas.

Three new projects completed in Puxi in the first quarter. Three new buildings, No. 8 Huangpu, Garden Square (formerly Huamin Imperial Tower) and Jing An Kerry Centre Tower 2, were completed this quarter in Puxi. Jing An Kerry Centre Tower 2 (43,725 sqm) was the first new Premium Grade A building to be completed in Shanghai since 4Q11. The development’s second office building, Jing An Kerry Centre Tower 3 (65,275 sqm) is due for completion in the second quarter. The average commitment rate for the two towers is nearing 65%, and interest in the project has remained high as the only Premium Grade A supply to be delivered in Shanghai this year. New projects this quarter pushed up the vacancy rate in Puxi by approximately 3 percentage points to 11.4%. The Pudong market remained tight, with market vacancy of 7.6%. In the decentralized market only one new project was completed this quarter - Baoland Square was delivered in decentralized Yangpu.

Strata-titled Office

Buying demand remains strong in Shanghai strata-titled office market.  Despite the week-long Chinese New Year holiday, buying momentum remained strong in the first quarter for strata-titled office space, driven by both domestic companies for self-use purposes and individuals’ investment demand. Among owner occupiers, large domestic financial institutions, in particular, showed strong demand for new strata-titled Grade A office projects with podium space available for their retail branches. For example, one SOE bank purchased 7,550 sqm in Oriental Financial Plaza, including office space and retail space. Another SOE bank acquired 4,300 sqm in Chamtime Corporate Avenue, including 3,520 sqm of office space and 780 sqm of retail space. A positive outlook for the economy in 2013 has led an increasing number of individual investors to become active in the strata-titled Grade A office market. Strong demand continued to fuel landlords’ pricing power. In 1Q13, average selling price in the overall market reached RMB 54,108 per sqm, while climbing to RMB 66,808 per sqm in the CBD. Looking forward, we expect that buying demand will remain strong and fuel further growth in pricing. Newly launched projects, however, will see milder growth, particularly in areas with less mature commercial environments.


Sales growth slows down during the Chinese New Year. According to the Shanghai Commerce Information Centre, sales in organized retail rose 10.2% y-o-y to RMB 5.6 billion during the Chinese New Year holiday, slowing from 14% y-o-y growth seen in the same period in 2012. Shopping malls sales were up 24%, but department store sales increased by just 7.5%. Destination malls in Shanghai performed well, such as Bailian Mid-Ring, which topped all Shanghai properties in sales volume over the holiday.

Prime retail locations remain in high demand, new entrants remain active. Popular centres secured more high profile tenants this quarter; for example, Metro City leased nearly 1,000 sqm to two high-end restaurants run by Wowprime, a Taiwanese chain restaurant group. Mixxo and Ashley Steakhouse, both sub-brands of E-Land, opened new stores in Super Brand Mall and Jinqiao Life Hub.  On the other hand, decentralised malls Lotus International Plaza and Yueda 889 have suffered from rising vacancy rates over the past few quarters. “While existing brands have generally slowed their expansion in Shanghai, inquiries from new entrants remained strong and focused on prime locations,” noted Eugene Tang, Head of Retail for Jones Lang LaSalle China. “For example, COS, an H&M sub-brand, is actively looking for space on Huaihai Road, while an Italian restaurant chain is looking to lease a 2,000-3,000 sqm store in downtown Shanghai.”

Rents maintain steady growth despite large volume of new supply.   All three newly-completed prime-area projects opened fully occupied this quarter. Huaning Huge Lifestyle Centre (20,000 sqm), targets the mass market, while K11 and L’Avenue are both high-end malls with experienced operators. New decentralised projects, despite being relatively small at 20-40,000 sqm each, were less successful in achieving high occupancy rates upon completion. As a result of new supply, vacancy rates rose slightly in both markets this quarter to 5.0% in prime and 6.3% in decentralised, with empty space concentrated in newer properties. Due to limited vacancy and healthy demand, open-market ground floor base rents for shopping malls in the prime market rose by 1.1% q-o-q to RMB 48.4 per sqm per day, while decentralised rents rose 0.9% q-o-q to RMB 18.9.


New tightening policies introduced to curb investment demand.  2013 began with strong sentiment in the residential sales market. January and February, a traditionally slow period for home sales, was unseasonably strong with growth of 142% y-o-y for commodity housing. More noticeably, home prices began to creep up and many home buyers started to anticipate further growth in the coming months. Against this backdrop, the central government announced a new round of tightening policies on 1 March to reaffirm the strict implementation of existing measures. The new guidelines included the enforcement of a 20% capital gains tax on secondary sales to discourage home purchases for investment purposes. According to Joe Zhou, Head of Research for Jones Lang LaSalle Shanghai, “the immediate effect of this guideline was to trigger a surge in secondary market sales volume in March as buyers and sellers looked to complete transactions before the implementation of the new guidelines in Shanghai.” In the primary market, sales remained strong in March, bringing transaction volume for 1Q13 to 3,079,634 sqm, up 115% y-o-y and flat from the peak level of 4Q12.

High-end sales subdued due to diminishing incentives from developers. Sales volume of high-end apartments only reached 318 units in 1Q13, down 30% from last quarter, as price discounts were rare. Primary sales prices of high-end apartments edged up 0.3% q-o-q on a like-for-like basis in 1Q13 as several projects began to raise prices after achieving stronger-than-expected sales last year. Secondary sales prices grew by 1.8% q-o-q as a rising volume of transactions strengthened sellers’ confidence. During the first quarter no projects launched new units for sale as developers are still focused on selling units launched last year.

Rents in the leasing market edge up on limited vacancy and steady demand for serviced apartments. In the leasing market, demand for serviced apartments remained stable in 1Q13. With no new completions in the quarter, the overall vacancy rate fell by 1.5 percentage points to 11.4%. As occupancy rates remained high, some landlords raised rents for contract renewals this quarter. On average, rents for serviced apartments in Shanghai edged up by 0.4% q-o-q on a like-for-like basis in 1Q13.


CBD office assets in high demand; growing interest in logistics properties.  Investment yields in the office market held flat in the first quarter on strong investor interest, particularly for core CBD, income-producing office assets. For example, Ocean Tower, a stabilized Grade A building in Huangpu district was purchased by ARA this quarter for approximately RMB 1.9 billion. Inter-Asian investors and private China-focused funds continued to be the dominant players in Shanghai’s office investment market. Meanwhile in the retail market, Keppel Land China and Alpha Investment Partners jointly acquired Morgan Stanley’s 80% stake in Jinqiao Life Hub in Pudong at a total consideration of RMB 2.64 billion or around RMB 28,800 per sqm GFA. Both the Ocean Tower and Jinqiao Life Hub transactions were brokered by Jones Lang LaSalle. In addition, many investors have shown keen interest in moving into the logistics sector, as an alternative to buying retail property to tap into China’s growing consumer class.

Following the successful listing of the USD 1.35 billion Mapletree Greater China Commercial Trust this quarter, we are likely to see more Singapore-listed REITs launched later this year. “Much of this off-shore capital raised is likely to be deployed in China’s Tier 1 cities such as Shanghai which offer healthier market fundamentals than Tier 2s which in many cases are under significant pressure from future supply,” noted Alan Li, Head of Investment for Jones Lang LaSalle Shanghai. “Investors bullish about the growth potential in China will continue to invest in these listings which is expected to further increase demand for stabilized, income-producing assets in core areas of Shanghai.”



Inquiries fall as retailers grow cautious; e-commerce demand stays strong. ”Demand softened this quarter as inquiries declined from retailers and related firms, the primary drivers of the non-bonded market,” commented Stuart Ross, Head of Industrial for Jones Lang LaSalle China. “Such firms have grown cautious and slowed store expansion plans as China’s retail sales growth has weakened” he added. Demand from online retailers, on the other hand, remained strong. Small-to-medium sized e-commerce firms continued to seek large spaces in Shanghai’s popular western districts, where vacancy hovers near zero.

Logistics demand expanding to Shanghai’s satellite cities. Availability and cost considerations instead led many firms to look at space in the satellite cities of Kunshan, Jiaxing, and Taicang, which have relatively abundant supply and are well-positioned to serve retail markets in both Shanghai and the wider Yangtze River Delta. Take-up in Kunshan was especially strong this quarter, with Gap leasing 24,000 sqm in Goodman’s Jinxi project and a 3PL consolidating part of its Shanghai operations in a single large space in another Goodman facility. As a result, vacancy in Kunshan felt to an historical low of 1.1% this quarter. Vacancy in Shanghai was flat as T-Mall’s lease of 30,000 sqm in Blogis Songjiang Phase 2 was balanced by rising vacancy in the Lingang submarket. 

Rents continue to grow steadily for logistics space. Low vacancy in desirable areas allowed average rents in Shanghai to rise 1.9% q-o-q to RMB 1.24 per sqm per day. Strong take-up and falling vacancy buoyed rents in Kunshan to RMB 0.91 per sqm per day, up 2.9% q-o-q. Rents in Jiaxing leapt from RMB 0.82 to RMB 0.91, largely a result of one large high-priced lease which was signed in that small market.
Business Parks

Positive rental growth outlook on low 2013 supply.  After new completions resulted in an uptick in vacancy in the latter half of 2012, no new completions are scheduled in Shanghai’s business park market for the first three quarters of 2013. Although inquiries remain at a lower level than a year ago due to concerns about the global economy, demand is still strong enough that we expect sustained rental growth in the tight market. In one notable example of landlord optimism, a prime-quality building in Zhangjiang Hi-Tech Park raised rents by over 10% in the first quarter. Several international firms with growing China presences consolidated and expanded their business park space in Shanghai this quarter, with a focus on building up R&D functions.  Such companies are aiming to boost efficiency while moving research functions closer to one of their largest customer bases. The most active firms this quarter were in pharmaceutical, new materials, and telecommunications sectors. Investment interest in the business park sector is rising among foreign private equity firms that are put off by the complex regulations and high prices of the residential and office sectors. Companies are exploring purchasing stable existing assets from government and private sellers for both leasing income and capital gain.


First quarter manufacturing demand remains weak, but may be reaching a bottom.  International manufacturers affected by the slow global economy continue to be cautious about investing in new capacity in China, resulting in weak demand for manufacturing facilities. Representatives of local governments and industrial zones are aggressively pursuing new customers with offers of cheap land and tax rebates for firms with sufficient registered capital.  While some LOIs and MOUs have been signed, most firms are waiting for an upturn in the economic environment before expanding their China footprints. Prolonged weak demand is having an effect on the investment market, with some investors facing strong pressure to lease out their assets.  The most active sectors for manufacturing facilities continued to be pharmaceuticals, medical devices, food and beverage, and fast moving consumer goods.  The most notable transaction this quarter came from Danish toy company LEGO, which will build a new plant in Jiaxing City in Zhejiang Province to supply the firm’s growing Asian market. Demand from renewable energy firms was weak, as overcapacity has pushed that industry into a steep downturn, symbolized by this quarter’s bankruptcy of solar panel maker Suntech. One bright point in the first quarter was that inquiries were roughly at the same level as the fourth quarter of 2012, indicating that the market may be bottoming out.  Manufacturers are optimistic about economic recovery in the second half of the year, and barring new shocks to the global economy we expect demand to begin recovering in the third and fourth quarters.