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News Release


Office net absorption hits record high in 2015

According to JLL Shanghai Fourth Quarter Property Review

​​​SHANGHAI, 13 January 2016 – 2015 has been a strong year for Shanghai's office leasing, investment, and residential sales markets. "For the year of 2015, Shanghai's office leasing net absorption hit a record high," said Anthony Couse, Managing Director for JLL East China. "Both domestic and foreign companies were active in the market." In addition, strong office rental prospects have led to a number of milestone transactions in Shanghai. In the retail leasing market, a number of malls that recently went through tenant adjustments were the main contributor to overall market rental growth. In the residential market, continued accommodative policy resulted in a boost to primary market sales volume as well as prices. 


Overall net absorption hits record high in 2015. "Demand continued to be strong towards the year-end, and we have witnessed strong leasing performance in a number of recently completed projects in Pudong as well as core locations in Puxi," said James Allan, Head of Markets for JLL Shanghai. Domestic as well as multinational companies in the technology, retail, professional services and financial services sectors actively sought office expansion opportunities in both the Pudong and Puxi CBDs. For example, Ping An expanded by 5,000 sqm in the HSBC Building. Overall net absorption in 2015 reached a historical high of approximately 1.45 million sqm, almost doubling the 2014 figure.

New supply in Zhuyuan taps pent-up demand in Pudong. In the Pudong CBD, Century Metropolis (132,003 sqm) in Zhuyuan reached completion and achieved good leasing progress by the end of the quarter. No new projects came online this quarter in the Puxi CBD. In the decentralised market, four Grade A projects with a total GFA of 171,340 sqm were completed, including SCG Parkside (39,000 sqm), Century 333 (39,000 sqm), Lilacs International Commercial Center (52,782 sqm) in Pudong, and International Shipping Centre B02 & B05 (40,566 sqm) in Puxi.

Rents continue to rise towards year-end amidst strong demand. Strong leasing momentum continued to drive rental growth in both the Pudong and Puxi CBDs. Pudong Grade A rents increased by 2.9% q-o-q to RMB 11.1 per sqm per day, while Puxi Grade A rents rose by 2.5% q-o-q to RMB 9.7 per sqm per day. Both domestic and foreign investors held positive outlooks on rental growth prospects, and as a result remained active in the en-bloc investment market. 

Strata-titled Office 

Strong buying demand drives 2015 transaction volume to a record high. In 4Q15, five new projects with total GFA of 210,200 sqm launched in the high-end strata-titled office market, driving new launch volume for the full year to 472,900 sqm. Two projects that launched this quarter already have sold all of their space. Similar to the past three quarters, domestic listed companies continued to demonstrate strong buying demand. For example, CSC Group—a China-listed fund management company —acquired all of the space in the newly launched Shanghai International Shipping Center building (23,221 sqm) this quarter. In 2015, annual transaction volumes rose 61% y-o-y to reach a historical high of 374,516 sqm. A large portion of the year's transaction volume was accounted for by deals with transaction values exceeding USD 5 million.  

Business Park

IT sector sees strong year with expansion and new set-up requirements, driving net absorption in the core business park market. Several major leasing transactions concluded negotiations this quarter, recording another strong year for net absorption in Shanghai's core business park market. For example, the Chinese telecommunications equipment manufacturer Huawei Technologies started to execute their expansion plan for mobile business and leased 42,000 sqm in Jinqiao's SITC. Meanwhile, the goal to boost innovation by fostering start-up business encouraged both government-backed and private business incubators to expand their market presence. For example, Feimalü, a Shanghai-based private incubator associated with a private equity firm, leased 17,000 sqm in Daning Centre Square Ph 3. Strong demand continued to drive rents, which grew 0.9% in 4Q15. Despite the ongoing wave of new supply in 2015, the year concluded with a 2.3% y-o-y increase.  

Strong leasing momentum is anticipated in 2016. Traditional business park industries such as IT, chemicals & pharmaceuticals, and manufacturing & trading will continue to grow. More importantly, tenants located in CBD markets (such as financial services firms) are expected to outsource certain functions like general operations and technical support, which will be dedicated to business park areas. For example, one Shanghai-based internet finance company that set up two new offices in Zhangjiang in 3Q15 is now reviewing their asset portfolio and is planning to lease space for their back office. As such, strong leasing activities as well as diversified demand sources will likely lead to moderate rental growth in 2016.  

Capital Markets

Strong finish to a record investment year.  "We've witnessed strong investment appetite from both domestic and foreign investors, backed by a record number of transactions in Shanghai this year," said Anthony Couse, Head of Capital Markets for JLL China.  Mr. Couse continued: "The fourth quarter was particularly strong in terms of investment volumes, as a number of investors were able to close transactions that they have been working on throughout the year." For example, 3 Corporate Avenue was sold by Shui On to LKK Health Products Group and Vanke Group. This deal illustrates strong market appetite for high quality core CBD assets and also reflects market liquidity.

Foreign investors were more active in the investment market this year. Foreign institutional investors such as REITs from Hong Kong and international private equity funds were particularly active throughout this year, driving majority of the RMB 80 Billion worth of investment transactions in the Shanghai market. These investors were able to set a few milestones through their acquisitions. For example, HK-listed LINK REIT set a record for acquiring the largest fully stabilized en-bloc transaction to date in Shanghai. CBREGI made headlines this quarter by disposing 818 Plaza, a significant transaction as there have been no en-bloc transactions of institutional premium retail assets in Shanghai for the past three years. The Platinum, One Prime and Ciro's Plaza all changed hands either from or to foreign institutional investors. Looking forward, foreign investors will remain active in the market, given there is a large amount of uncommitted capital by funds in the market as well as existing legacy assets in the portfolio by investors which need to have their values realized. Domestic institutions and corporates will continue to play an active role in the market as both a seller and a buyer.

Investment appetite for logistics transactions strong; en-bloc transactions are emerging. Entity-level investments into logistics remained popular as the Canadian Pension Plan Investment Board (CPPIB) increased its commitment in logistics property developer Goodman by USD 1.25 billion, and also acquired nine projects through that platform. With first hand industrial land eligible for building warehouses becoming scarce, local and international developers both are turning to the secondary markets to acquire land to build development pipelines. An international developer placed part of its assets on the market to jumpstart the secondary investment market, and the sale attracted considerable investor interest from institutional investors seeking to access the China logistics real estate market. When the transaction is complete, the deal will set a benchmark for institutional investment grade logistics transactions. 


Luxury retailers shift strategy to broaden customer bases. "Luxury brands such as Burberry and Cartier are going online to expand their customer bases," said Eugene Tang, Head of JLL Retail for Shanghai and Eastern China. Although luxury brands remained cautious about opening new offline stores, they are expanding their reach by setting up online stores – in the fourth quarter, Burberry opened its official flagship store on Meanwhile, affordable luxury brands continued to expand as Coach, Furla, Michael Kors and Kate Spade opened new stores in key submarkets. In the mass market, fast fashion brands sustained their pace of expansion. In Q4, Muji opened three new stores, including its new global flagship store on Huaihai Road. Uniqlo and H&M also opened multiple new stores in the city.

First large-scale mall opens in Hongqiao Transportation Hub. Shui On Group's The Hub opened with a total GFA of 96,200 sqm this quarter. The mall was anchored by fast fashion tenants including Uniqlo, H&M, Muji and Gap, providing a variety of lifestyle offerings to local office workers and tourists. It also features a remote check-in counter for Hongqiao Airport and a 13,000 sqm performance venue. Vacancy decreased slightly to 7.4% in core areas as several existing malls in the East Nanjing Road and the Hongqiao submarkets filled their empty space. Vacancy held flat at 7.1% in the non-core market.

Tenant adjustment brings rental premium to a number of malls. In the core area, open-market ground floor base rents increased by 4.6% y-o-y to RMB 52.6 per sqm per day. In the non-core areas, rents increased by 5.1% q-o-q to RMB 20.7 per sqm per day.  In both markets, successful malls undergoing tenant adjustment outperformed the market and contributed to overall market rental growth.


Sales volume in 2015 reaches six-year high.  Under accommodative policy stance, market sentiment remained bullish in the fourth quarter. Primary sales volume in the mass market grew another 22.1% q-o-q, concluding the year with 15 million sqm sold, up 51% y-o-y.

Strong market sentiment encourages new launches. The high-end segment saw 1,306 units sold in 4Q15, bringing the full-year's sales volume to a six-year high of 3,166 units. The number of new launches remained high amid buoyant buying sentiment. A total of 1,326 units arrived to the market for sale in 4Q15. For the full year, a total of 3,270 units were launched, the highest level since 2009. On the back of strong sales, developers continued to raise sales prices through the quarter. Primary prices for high-end apartments grew 1.9% q-o-q to RMB 86,305 per sqm in 4Q15, accelerating from last quarter's 1.5%. For the full year of 2015, high-end prices grew 6.2% y-o-y.

Improved demand and limited new supply lead to slight rise in rents. In the serviced apartment market, demand picked up slightly towards the year-end. At the same time, there were no new openings of serviced apartment projects. Three projects with a total of 450 units were withdrawn in 4Q15 as landlords decided either to sell the units on a strata-title basis or convert them to office use. As such, the total stock of the serviced apartment market fell by 7.3% y-o-y in 4Q15. As a result of improved demand and decreased stock, overall vacancy fell by 1.1 pps to 11.1% in 4Q15. Average rents for serviced apartments edged up by 0.3% q-o-q. For the full year of 2015, average rents rose by 0.9% y-o-y.

Strong sales momentum is likely to continue in 2016. We expect strong buying sentiment to carry over into 2016. "Accommodative policy stance is expected to continue to drive growth in sales volume and prices going into 2016," said Stephenie Zhou, Head of Residential for JLL Shanghai.


Demand from diverse sectors contributes to strong net absorption. Non-bonded net take-up rose from 3Q15's 90,000 sqm to over 132,000 sqm in the fourth quarter, and was evenly distributed across submarkets. Total absorption in 2015 reached 380,000 sqm, an impressive number given the year's limited new supply. 3PLs, retailers, e-commerce companies and manufacturers were all active this quarter. Clothing seller E-land leased all of the space in the recently completed Prologis Jinshan project. "Currently, vacant space is concentrated in East Shanghai, especially the Lingang area," said Stuart Ross, Head of Industrial for JLL China. "Vacancy that had built up in West Shanghai in 2H14's supply wave has almost been fully absorbed by now."

Non-bonded vacancy continues to drop due to limited supply. Non-bonded vacancy fell 2.0 pps to 9.2% in 4Q15, as a result of robust demand and limited supply. Absorption was also strong in the bonded market, with most of the 120,000 sqm project completed in 3Q15 leased out to a variety of tenants.

Rents remain flat despite strong leasing activities. Non-bonded rents were flat in 4Q15, resulting growth of 0.8% y-o-y for the whole year of 2015. Competition from nearby cities and Shanghai's own upcoming supply wave led landlords to remain cautious about raising rents in spite of this year's encouraging absorption.