Skip Ribbon Commands
Skip to main content

News Release


Decentralised areas outperform in the office leasing market; Shanghai office market is the most popular destination for investment capital

According to Jones Lang LaSalle Second Quarter Property Review

Most MNC tenants in the CBD leasing market preferred to renew their existing leases this quarter, leading to stability in the rental market. “Despite weaker expansion demand from MNCs, domestic leasing demand remained stable, helping maintain moderate office rental growth in Pudong and contributing to healthy investment demand for mature, income-producing assets,” said Anthony Couse, Managing Director of Jones Lang LaSalle Eastern China.Meanwhile, demand remained robust in decentralized areas with over 100,000 sqm of net absorption in the quarter. Shanghai’s investment market saw RMB 20.4 billion in transactions in the first half of the year, a 64% increase over the same period last year.   In the retail market, F&B tenants continued to expand aggressively, reflecting a rising demand for lifestyle and leisure experiences in shopping centres. Mass market residential sales volumes fell after last quarter’s surge in activity, while high-end residential sales prices edged upward. In the logistics market, vacancy rose as two new projects entered the Shanghai market with space still available, and rental growth slowed as demand remained subdued from traditional retailers.


Puxi CBD rents flat as expansion demand remains weak. In Puxi, the market was dominated by lease renewals this quarter, easing pressure on landlords to lower rents. As a result, average Puxi CBD rents remained flat at RMB 9.0 per sqm per day. The majority of active tenants in Puxi came from the pharmaceutical and luxury retailer industries. For example, Glaxo Smith Kline expanded in-house by about 1,000 sqm in The Headquarters Building and Ralph Lauren expanded from Chong Hing Finance Center to Verdant Place, leasing one whole floor. In Puxi’s Premium Grade A market, rents also remained flat. Jing An Kerry Centre Tower 3 was the only new building completed in the Puxi CBD this quarter, with a total GFA of 65,497 sqm of Premium Grade A space. The occupancy rate in the building was approximately 80% upon completion.

Strong domestic demand fuels rental growth in Pudong.  Demand in Pudong was strongest among domestic companies in the financial services sector this quarter. For example, a newly-established fund from Bank of Nanjing leased about 3,000 sqm in Aurora Plaza. Meanwhile, demand from MNC companies remained weak in Pudong, with most tenants choosing to renew their existing office space. However, as a result of limited available space and strong demand from domestic companies, Pudong rents increased by 1.3% q-o-q this quarter. In the Premium Grade A market, average rents for Pudong Premium Grade A space grew by 1.6% q-o-q to RMB 10.7 per sqm per day, a result of very limited vacancy and no new Premium supply completed since 2011.

Decentralized Grade A net absorption surpasses 100,000 sqm. Net absorption has remained strong in the decentralized market, with total take-up exceeding 80,000 sqm per quarter in each of the past 8 quarters. In both Puxi and Pudong markets, more tenants considered relocating from CBD to decentralised areas for lower rents this quarter. Some MNC tenants from the manufacturing sector even relocated from the Pudong CBD to decentralised areas in Puxi in order to save on costs. In addition, upgrade demand from domestic companies remained strong. One new decentralized project, Baohua Center (44,586 sqm), was completed in Puxi this quarter. Strong demand supported continued growth in decentralized rents, which rose 1.0% q-o-q to RMB 5.3 per sqm per day.

Strata-titled Office

Strong buying demand; new Grade A projects launched in decentralised market. Due to seasonally strong demand, landlords of strata-titled office projects typically choose March-May as a period to launch strata-office projects. Since the end of March this year, three new Grade A strata-titled projects with a total GFA of approximately 79,600 sqm launched in the decentralised market. Purchasing demand was strong, driven by demand from both individuals’ investment and corporates’ self-use. Sales volume increased by 28% y-o-y, reaching around 30,000 sqm this quarter. Projects with small-sized units mainly attracted individual buyers for investment purposes.

Meanwhile, domestic companies purchasing for self-use typically acquired whole-floor or multi-storey strata-titled space. In spite of strong demand, the average strata-titled sales price dropped slightly this quarter to 0.4% q-o-q due to two factors: first, newly launched projects intensified competition in the Grade A strata-titled market, and second, some projects offered discounts this quarter in order to increase their sales velocity and clear up relatively small amount of remaining inventory.


Shanghai office assets remain sought-after by investors. Shanghai continued to be the favoured destination for investment in China based on activity by both domestic and foreign players. Demand for centrally-located, stabilized assets with strong income remained robust, and the Shanghai office market is still the most sought-after sector in China due to healthy market fundamentals and long-term growth prospects. For example, Jones Lang LaSalle acted on behalf of Forterra trust to sell Central Plaza in Huangpu District to American private equity firm Carlyle this quarter for RMB 1.67 billion. “An increased focus on Tier 1 has coincided with an increased allocation of capital to China by global core investors, such as pension funds and sovereign wealth which previously viewed the market here as too risky,” commented Alan Li, Head of Investment for Jones Lang LaSalle Shanghai. “These buyers are now increasingly focused on Shanghai’s commercial market as a source of core and core-plus investments.” Capital values for office assets have stabilized over the past year, but are expected to grow moderately moving forward provided rental growth recovers.

Retail market sees one large transaction in the second quarter. Demand for retail assets remained stable this quarter although overall demand has softened from the same time last year. The market is still constrained by a lack of tradable investment-grade assets and a weakened outlook for retailer expansion and sales growth in China. Key projects that are under-leased or have upgrade potential are expected to continue to entice investors. For example, Hong Kong-based New World Development Group purchased Hongxin Fashion Plaza (43,660 sqm) in Changning District at a total price RMB 1.25 billion or RMB 28,630 per sqm on GFA basis this quarter. The project will be renovated into a New World Department Store. CITIC Capital recently closed a US$ 683 million fund to invest in retail projects in China, evidence that we can still expect to see a large volume of capital pursue this sector in the coming quarters.

Interest in business parks and logistics assets remains strong. Interest remained strong for business park and logistics assets as many investors are attracted to the higher yields compared to office or retail property. For example, one international investor is currently negotiating to purchase a business park property in Pudong from a consortium of public and private owners. Meanwhile, in the residential investment market, Ascott Residence Trust incorporated Citadines Biyun Shanghai – a serviced apartment complex in Pudong – from its fund management business for a total consideration of RMB 321 million, which translated into an average consideration of approximately RMB 20,200 per sqm.

Land market becomes more active; tightening liquidity has not affected investors. The Shanghai land market was very active in the first half of 2013. Developers were the primary driver of transactions in the past quarter, purchasing land mainly in decentralized areas for future development. End-users also became active in the second quarter. For example a number of domestic companies purchased land in the former Pudong World Expo site to develop headquarters offices. According to government data, there was approximately RMB 51.7 billion in residential and commercial-use land transacted in the second quarter.

While short term concerns over the tightening credit environment in China have affected financial markets as a whole over the past quarter, these changes have not had a strong impact on en-bloc investors in commercial real estate, many of whom still have access to affordable offshore financing. Most institutional investors do not see the situation as a long term threat and are still confident in Shanghai’s strong market fundamentals.


Aggressive expansion by Korean retailers in Shanghai this quarter. “Retailers are still keen to expand in the Shanghai market,” says Eugene Tang, Head of Retail for Jones Lang LaSalle Greater China. “The most aggressive expansion is in the F&B trade, reflecting a rising demand for lifestyle and leisure offerings in shopping centres.” Among fashion tenants, most expansion was in the mid-market range, with slower expansion at the high end. Korean retailers were very active in both new openings and projects pre-leasing space this quarter. For instance, Caffé Bene, a coffee chain store, and Innisfree, a cosmetics brand, both set up new stores in Hongkou Cloud 9. E-land group also continued to expand, with sub-brands Mixxo (fashion) and Ashley Steakhouse (F&B) set to open soon in Superbrand Mall and Touch Mall, respectively. Elsewhere, the Nanjing East Road submarket continued to lose some of its appeal among retailers this quarter, evidenced by increasing vacancy rates in several malls, as local consumers turned to other shopping districts.

High occupancy in newly completed properties. Ifc Mall Phase II (10,000 sqm) launched in Pudong with a high percentage of space open and trading, targeting luxury consumers with a tenant mix focused on F&B and jewellery. In addition, Touch Mall (36,000 sqm) opened in a decentralised area along the Xuhui riverfront. Developed by Greenland Group and operated by Chia Tai Group, the project opened at 70% occupancy, with a large weighting of fashion and F&B tenants.

Rents up across Shanghai while vacancy converges in prime and decentralized areas. In prime areas, open-market ground floor base rents for shopping malls rose by 1.1% q-o-q to RMB 49.0 per sqm per day, while decentralised rents rose 1.3% q-o-q to RMB 19.2 per sqm per day. Vacancy rates increased slightly this quarter in the prime market to 5.5% while decreasing to 5.8% in the decentralised market. Vacant space left by big box electronics retailers in previous quarters was filled by food courts and services (e.g. banks, spas, etc.) in several malls. For instance, Lotus International Plaza and Laya Plaza raised their occupancy rates by signing new F&B tenants into space vacated by electronics brands.


Mass market sales fall despite light enforcement of latest national regulations.  The highly-anticipated 20% capital gains tax on secondary sales has not yet been implemented in Shanghai as of end-2Q13. However, buying momentum slowed in 2Q13 after a short-lived sales boom in March when buyers rushed to the market, believing that the capital gains tax would soon be put into effect. Primary sales volume in April fell by 41% m-o-m, followed by an increase of 3% and 23% in May and June, respectively. As a result, sales volume of commodity housing in the primary market was down 3% in 2Q13 from a quarter ago.

High-end sales prices edge upward. Two high-end projects launched units this quarter: Keppel Land’s 8 Park Avenue in Jing’an District launched its second phase, offering 260 units for sale in June. By the end of 2Q13, 46 units had been sold with transaction prices averaging RMB 69,018 per sqm. The Paragon in Luwan District, developed by CapitaLand, launched 92 new units in 2Q13. As HPRs remained in place and price discounts nearly vanished, overall high-end sales volumes remained subdued with just 350 units sold during the quarter, declining slightly by 1% q-o-q. Primary sales prices of high-end apartments continued to creep up as a handful of projects raised prices slightly after achieving stronger-than-expected sales. However, most projects kept their sales prices unchanged due to weaker sales momentum. On a like-for-like basis, high-end sales prices posted a 0.3% q-o-q increase in 2Q13.

Softening demand and rising vacancy lead to fall in rents at serviced apartments. Two new serviced apartment projects came on the market this quarter: Residences at Mandarin Oriental in Pudong opened with 210 luxury apartments for lease, while Kerry Residences completed its renovation of 133 units in 2Q13. Demand in the leasing market from expatriates softened, however, as MNCs mostly remained cautious deploying new expatriates due to the weaker economic outlook. With demand weakening, the completion of new serviced apartments in the market pushed up the overall vacancy rate by 2 percentage points to 13.4% in 2Q13. In light of this, some older projects lowered rents to attract tenants. As a result, average rents for serviced apartments in Shanghai fell by 0.6% q-o-q to RMB 220.8 per sqm per month.


Rental growth slows in non-bonded logistics market. Demand from e-commerce firms remained strong this quarter, according to Stuart Ross, Head of Industrial for Jones Lang LaSalle China. “Many e-commerce companies have large space requirements and are looking to lease large contiguous spaces or even buy land for development, often in satellite cities like Kunshan or Jiaxing.” Demand was also strong among third party logistics providers (3PLs), who represent a range of clients from industries including machinery, food producers, and apparel. Demand was stable from manufacturers. For example, the Swedish firm Atlas Copco leased 8,000 sqm in Goodman’s Pudong Airport project. Retailers continued to be cautious in leasing new space, however, due in part to a recent slowdown in national retail sales growth.  Overall inquiry levels were flat with the previous quarter and lower than a year ago.  As a result of subdued inquiries and lower transaction volumes, rental growth in the non-bonded market grew by a modest 1.1% q-o-q to RMB 1.25 per sqm per day.

Two non-bonded projects were completed in Shanghai. Furniture-maker Markor Home finished a 14,000 sqm warehouse in Songjiang, which was fully leased to China Salt upon completion. GLP completed a 45,000 sqm project in Lingang, a portion of which is under negotiation from an MNC. Shanghai non-bonded vacancy edged up 1 percentage point to 7.9%, largely as a result of rising vacancy in the Lingang submarket.

Satellite cities set to grow more prominent in Greater Shanghai market. Over the next few years, satellite cities will account for a growing share of non-bonded logistics stock in the Greater Shanghai region. Kunshan, Jiaxing, and Taicang only have a quarter of the region’s existing stock, but account for 41% of planned future supply through 2016.

Business Parks

Demand for business parks stable with first quarter.  It has been a quiet quarter for business parks, with few major transactions and no new completions in the Shanghai market.  Inquiry levels have been stable with the first quarter but are still weaker compared to 2012, due in large part to concerns about the global economy. MNCs in the energy, pharmaceuticals, and new materials sectors are looking at the market, seeking space ranging from 8,000 sqm to 30,000 sqm in order to expand from or consolidate their existing leased space.  We expect many firms to finalize leasing deals later in the year, as more space becomes available in new projects in desirable areas like Zhangjiang and Caohejing.  Rental growth in these areas has been strong, with rents rising by as much as 10% this year in some projects. We have downgraded our overall rental outlook for 2013 as China’s economy looks to remain sluggish, though growth will still be strong in premium-quality business parks. 


Sluggish economy continues to affect demand. Demand from global manufacturers remained weak in Shanghai this quarter, with many firms choosing to limit the size of their investments or postpone investment decisions. As a result, although inquiry levels are stable, effective space requirements so far in 2013 are down from the same period a year ago. Cities in Shanghai’s industrial backyard in Jiangsu and Zhejiang are feeling the impact of weak MNC demand, with most cities struggling to keep pace with their annual FDI targets. Some industrial property developers have pulled back from plans to invest in capacity in several cities due to concerns of a lack of demand.  Weak demand continues to affect the investment market, with some investors trying to lease out or sell underperforming assets. Bright spots remain in sectors for which customers continue to spend money despite sluggish economic growth, including pharmaceuticals, food and beverage, and fast moving consumer goods. Demand remains strong among these and other firms for high-standard single floor workshops in Shanghai, which have been able to maintain stable or increase rents due to tight supply.