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News Release


Enquiries rise in Puxi office market; Three new shopping malls open with high commitment rates

According to Jones Lang LaSalle Third Quarter Property Review

Office leasing transaction volumes were low in the CBD this quarter, but there was an increase in enquiries for space in Puxi. “After being cautious for the past several quarters, companies have grown more confident and have put expansion plans back on the agenda.” said Anthony Couse, Managing Director of Jones Lang LaSalle Eastern China. Meanwhile, office rental growth in Pudong remained strong due to a lack of supply and strong demand from domestic tenants, and growing numbers of tenants were also considering decentralized space. In the retail market, two high-end malls opened in the central city and one decentralized mall reached completion as demand was strong from household goods and mid-range fashion retailers. Office transactions continued to fuel a strong year for the Shanghai commercial investment market, while interest in logistics properties is growing quickly. Mass market residential sales volumes rebounded this quarter thanks to a strong September, while high-end residential sales prices rose on limited supply. In the logistics market, non-bonded rental growth moderated, while the announcement of Shanghai’s Free Trade Zone sparked a wave of interest in bonded logistics, leading landlords in bonded areas to raise rents.


Enquiries rise in Puxi as firms renew expansion plans. While leasing transaction volume was low throughout the Shanghai CBD this quarter, there was an increase in the number of new enquiries for office space in Puxi. Companies which previously were in wait-and-see mode now have a more confident outlook and have put expansion plans back on the agenda. Over 30% of the space in the upcoming Henderson 688 and 5 Corporate Avenue was under negotiation by quarter-end, indicating strong market sentiment. Both projects are due for completion in 2014. Foreign retailers remained active in the Puxi CBD market. For example, L’Oreal expanded their Park Place office by around 5,000 sqm. Rents in Puxi remained flat this quarter at RMB 9.0 per sqm per day. In the Puxi Premium Grade A market, pre-leasing activity in future high-quality projects intensified, creating competition among existing projects, with some landlords willing to compromise to retain major tenants. As a result, the Puxi Premium Grade A average rent dropped by 2.1% q-o-q to RMB 10.6 per sqm per day. Looking forward, we expect the rising number of enquiries witnessed in Puxi during the quarter to translate into leasing transactions in early 2014.

Rents rise and vacancy falls in Pudong as supply drought extends to a full year.  Domestic tenants remained active, particularly those from the financial sector. For example, CITIC Trust expanded from Citigroup Tower to Shanghai IFC Phase II, leasing 1,300 sqm. MNCs remained inactive in Pudong. With no new supply for four consecutive quarters, the Pudong CBD’s vacancy rate dropped to 4.1%. Underpinned by both the strong demand from domestic tenants and very limited available space, landlords maintained stronger bargaining power and continued to increase rents. As a result, Pudong Grade A rents grew by 1.0% q-o-q to RMB 9.2 per sqm per day, and the Pudong Premium Grade A average rent reached RMB 10.9 per sqm per day, up 1.9% q-o-q.

Three new projects completed in decentralized market. The projects totalled 149,700 sqm of office space and included Magnolia Plaza (31,500 sqm) and Riverside International Plaza (52,900 sqm) in Puxi, as well as Lujiazui Century Financial Plaza (65,300 sqm) in Pudong. Growing numbers of companies are willing to consider decentralized office space. Tenants from the logistics, manufacturing, and pharmaceutical sectors showed interest in relocating to decentralized areas to secure contiguous space at lower rents.

Strata-titled Office

Prices in the decentralised market remain flat. Supported by stable buying demand, sales volumes reached 22,000 sqm this quarter, mostly in the decentralised market. Two new Grade A strata-titled projects with a total GFA of approximately 50,000 sqm launched in the decentralised market. As of 3Q13, new supply in the decentralised market reached around169,000 sqm ytd, compared with 65,000 sqm over the same period in 2012.With increasing decentralized supply leading to intensified competition, projects that launched in the past two quarters held sales prices flat in order to prioritize sales velocity. As a result, decentralized strata-titled prices grew by only 0.4% q-o-q this quarter. By contrast, transaction prices in the CBD market rose by 2.2% q-o-q this quarter. Contributing to this relatively strong growth was the lack of any new projects since 2012, which has kept supply in the CBD tight. In addition, demand has been strong from financial institutions , which continue to show great interest in purchasing office space in Lujiazui for self-use. For example, one bank purchased around 2,400 sqm of office space in Oriental Financial Plaza Tower A in 3Q.


Two high-end malls open in central Shanghai; City’s largest mall opens in decentralized Putuo IAPM, part of Sun Hung Kai’s ICC complex, had a soft opening in August on Huaihai Road, on the site of the former Xiangyang fake goods market. Located on Nanjing West Road, Jing An Kerry Centre also had a soft opening. In the decentralized market, Global Harbour opened along the Inner Ring Road in Putuo District. Built by furniture retailer Yuexing Group, the 320,000 sqm mall opened in July with 73% of space committed and a wide selection of international brands. Vacancy rates remained flat in the prime market at 6.8% but increased from 5.9% to 6.6% in the decentralized market following the opening of Global Harbour, which had some upper floor vacancies. Further lease-up in the project should be quick as the project is a destination for densely populated northwest Shanghai and enjoys access to three metro lines. In the prime area, open-market ground floor base rents for shopping malls rose slightly by 0.8% q-o-q to RMB 50.0 per sqm per day, while decentralized rents rose by 0.9% q-o-q to RMB 19.6 RMB per sqm per day.

Strong leasing demand from household and mid-range fashion brands.
Muji opened a Shanghai flagship store in IAPM, and supermarket chain Olé opened a large branch in the basement of Jing’an Kerry Centre. Both are examples of rising demand for lifestyle offerings in shopping centres. In addition, Zara Home opened its first Shanghai store on West Nanjing Road. Mid-range fashion retailers Gap and H&M sub-brand Monki opened stores in in the newly-completed Global Harbour. Korean and Japanese retailer expansion remained strong, with Korean cosmetics brand Innisfree opening in Hongkou Plaza, Superbrand Mall, and Metro City. Olive Young, owned by Korea’s CJ Group, opened in L’Avenue and Global Harbour. Uniqlo opened its largest flagship store in Asia (8,000 sqm) on Huaihai Road, plus a new store in Global Harbour. Superbrand Mall secured Korean fashion brands Beanpole and Prich as the project continued to upgrade.

E-commerce is increasingly making its impact felt on retail properties.
The combined effects of the e-commerce boom and large new supply will force newly developed properties to offer generous terms and incentives to tenants. Eugene Tang, Head of Retail for Jones Lang LaSalle Greater China said: “Mature properties will also experience rising pressure to re-orient their tenant mix towards experiential offerings of food, entertainment, and services.” Existing mid-range Shanghai properties with high space allocation for fashion tenants will need to consider adjusting. Some retailers will continue to expand aggressively, while others will remain conservative over the next year. Not all shopping malls will be able to lease out quickly, especially in increasingly saturated areas of the city. Moderate rental growth will persist in high occupancy properties but will be lower than previous years in newer, lower occupancy properties.


Office and industrial assets remain popular investment options in Shanghai.  Core office assets continued to be the most sought after asset class in Shanghai this quarter. For example, Cross Tower was sold from Ascendas China Commercial Trust to Gaw Capital for around RMB 1.65 billion this quarter. Investors displayed confidence in Shanghai, returning to this deeper and less risky market while continuing to shun many Tier 2 markets which are in the midst of supply booms in the office and retail markets. Grade B office assets are also being pursued by real estate funds, often with a value-add strategy due to the limited number of available Grade A assets. Despite higher transaction volumes in Shanghai, yields have not shown any significant movement this quarter as investors have remained rational and are hesitant to bid up the price of assets much higher than their current level in the absence of strong rental growth.

Industrial assets are becoming increasingly sought after in Shanghai, especially following the opening of the new Free Trade Zone in Pudong this quarter. These assets are expected to increase in value now given the boost to demand for logistics space following the opening of the FTZ. Beijing Properties was an early mover, purchasing the Shanghai Phoenix Waigaoqiao Bonded Logistics Center from CBRE Global Investors in the third quarter. In the residential market, Top Spring purchased Shama Century Park, a serviced apartment project located in Pudong District, from a JP Morgan fund for a total consideration of RMB 1.69 billion. There were no major transactions in the retail market this quarter.

Strong transaction volumes expected for full-year 2013. After a strong third quarter, overall transaction volumes in Shanghai have already surpassed 2012’s level. Although unlikely to return to the record level set in 2011, an active fourth quarter can be expected to end the year on a strong note, as several large office transactions are in the pipeline, including one large office tower in Lujiazui which is expected to be sold to a domestic bank. Domestic financial institutions continue to be major players in the office investment market.


Strong September drives primary sales volumes in 3Q13.  The primary sales volume in Shanghai saw a slight rebound of 5.4% q-o-q in 3Q13, after a peaked March and a 3.5% q-o-q slip in 2Q13. Although primary sales volumes experienced a seasonal slowdown in July and August, transaction volumes of primary market commodity housing surged in September – called the “golden month” for home sales – to 1.4 million sqm, up 59% m-o-m and 77% y-o-y, as first-time homebuyers and upgraders returned to the market.

High-end price growth accelerates. In the high-end segment, the sales market in 3Q13 remained subdued under Home Purchase Restrictions, with only 283 units sold, down 19% q-o-q. Developed by Shanghai Chengtou, Shanghai Aroma Garden in Huangpu District launched 152 units for sale in July. By end-3Q13, 72 units were reported sold, with transaction prices averaging RMB 63,270 per sqm. Meanwhile, OCT Suhe Creek launched 92 apartment units with an asking price ranging between RMB 80,000 and RMB 150,000 per sqm. Many projects have achieved stronger-than-expected sales over the past several quarters, which led some developers to set more aggressive pricing in 3Q13. For instance, The Palace in Xuhui District raised its price by 5-8% during the quarter after recording a consistently strong sales volume since 4Q12. As a result, on average, the primary sales prices of high-end apartments increased 2.7% q-o-q in 3Q13, accelerating from 0.3% in 2Q13.
Vacancy rises in serviced apartment market as demand remains soft. In the leasing market, demand from expatriates continued to soften in 3Q13. The slack demand reflected the persistent concern of MNCs regarding business expansion in the short term. MNCs in the manufacturing industry were most cautious about deploying new expatriates to Shanghai, while demand from retailers remained intact. With leasing demand weakening, the completion of new serviced apartments in the quarter pushed up the overall vacancy rate by 1.3 percentage points to 14.7% in 3Q13. The Bund Residences, developed by China Resources Land in the South Bund sub-market in Huangpu District, opened with 212 apartments for lease in 3Q13. Average rents for serviced apartments in Shanghai remained flat in 3Q13.



Non-bonded rental growth moderates. Demand for non-bonded warehouse space softened in 3Q13, due both to a downturn that began in late 2012 as well as 3Q being the traditional down season. Slower retailer expansion amidst slower retail sales growth led to fewer expansion requirements for logistics space, though enquiries from e-commerce retailers remained high. Take-up was slow in both recently completed projects as well as in existing warehouses with available space. GLP and Jiujiang Investment respectively built 44,000 sqm and 52,000 sqm warehouses near the Lingang area in southeast Shanghai. Jiujiang leased 20,000 sqm to a trading company, but otherwise the two projects saw limited pre-leasing activity. As a result, Shanghai’s vacancy rate rose from 7.4% to 9.9%. Shanghai’s mature western submarkets remained healthy, however, with limited supply continuing to outstrip demand. As a result, despite the subdued demand environment, Shanghai’s non-bonded rents still grew 0.4% q-o-q on a like-for-like basis.

Free Trade Zone announcement sparks interest in bonded market. The announcement of Shanghai’s Free Trade Zone (FTZ) drew renewed attention to the city’s bonded property market, according to Stuart Ross, Head of Industrial for Jones Lang LaSalle China.  “Much of the interest comes from 3PLs anticipating fresh requirements from end users.” For example, Orient Overseas Container Line leased 7,000 sqm in the Phoenix Bonded Logistics Centre in Waigaoqiao. Shanghai’s bonded market has been relatively quiet since the financial crisis, but the FTZ announcement has created new interest and spurred landlords to raise rent expectations. Bonded rents rose by 1.8% q-o-q to RMB 1.08 per sqm per day, the most significant increase in two years. With detailed policies regarding the FTZ yet to be released, however, it remains too soon to tell whether the quarter’s rent increase is a mere “blip” or the harbinger of long-term pickup in leasing in the bonded market.

Business Parks

Prospects diverge for Puxi and Pudong markets. Demand in the business parks sector was stable compared to the previous quarter and down from 2012, a result of concerns about the global economy.  Firms in the new materials, pharmaceuticals, and integrated circuits industries were active in the market, and demand was strong for space to fulfil back office functions for a range of industries. The announcement of Shanghai’s FTZ has attracted attention from some foreign banks, which may want to set up secondary branches in the Waigaoqiao area. The market outlook for Pudong is strong due to Lujiazui’s tight occupancy levels and a lack of available office space in decentralized areas.  Prospects are especially good for the core area of Zhangjiang, where retail and other amenities are rapidly improving and we expect further interest from developers and MNCs over the next 3-5 years in Zhangjiang Middle Zone. The outlook for Puxi is less strong due to the large number of decentralized office projects there – business parks near the Hongqiao Transportation Hub face particularly heavy competition.  Despite the slow demand, we expect rents in Shanghai to continue growing over the next several quarters, as demand for premium-quality projects remains strong and new supply will not hit the market until mid-2014. 

Rental growth steady amid tight supply.  The market slowdown that began in late 2012 continued this quarter, with many multinational firms conservative about making new investments and delaying or scaling back the scope of new projects. An exception was a pick-up in investment from auto-parts companies, which had curtailed expansion plans for much of the past year after aggressively following big auto-makers into new markets.  Demand was stable from pharmaceutical firms and makers of biomedical equipment.  Rezoning of industrial land for business parks and other commercial uses continues to lead some firms to leave traditional Shanghai manufacturing areas like Jiading and Songjiang, with many companies choosing to relocate to cities in Jiangsu and Zhejiang, which have more industrial land as well as lower rents and labor costs. Though these cities benefit from these relocations, many will struggle to meet their annual investment goals amid the overall weak demand environment. Shanghai’s Free Trade Zone is expected to have a limited impact on the city’s manufacturing market, as land in the zone is too expensive for most manufacturing investments. Rents in Shanghai are expected to increase for the year, as demand has been stable and there is a continued tight supply of high-quality projects.