Skip Ribbon Commands
Skip to main content

News Release


Decentralized offices get tenants’ attention as CBD rents rise

According to JLL Shanghai Second Quarter Property Review

​​​SHANGHAI, 06 July 2016 – Strong rental growth in Shanghai’s CBD led some tenants to consider less expensive options in decentralized markets. “This process is creating opportunities for landlords in submarkets near the CBD,” said Eddie Ng, Managing Director for JLL East China. Meanwhile, some companies began adopting coworking strategies to boost efficiency in working spaces. Net absorption in the logistics sector decelerated after a strong first quarter, though high inquiry levels indicated demand remained fundamentally strong. The retail market’s decentralized supply wave rolled on as F&B and affordable luxury retailers continued to drive demand.  High-end residential sales slowed and prices stabilized following the rollout of tightening policies at the end of the previous quarter. 


High CBD rents push some tenants to seek decentralised options. While domestic finance companies and multinational retailers continued to be active in the CBD, strong rental growth over the past year is pricing some tenants out of the CBD market. An increasing number of such tenants looked to emerging CBDs like the Railway Station and the North Bund for more affordable options.

Companies look to coworking strategies to improve workplace efficiency. As coworking space operators quickly expand in Shanghai, a growing number of corporate tenants are also adopting coworking elements in their own workplace planning. “Firms hope the strategy will raise workplace efficiency, boost talent retention rates, and enhance internal collaboration,” said James Allan, Head of Markets for JLL Shanghai. 

Two new projects reach completion in the Pudong CBD and decentralized Puxi. Century Link T1 (64,580 sqm GFA) reached completion in the Zhuyuan CBD. The Puxi CBD had no new supply for the third consecutive quarter. In the decentralised market, Hopson International Center (63,245 sqm GFA) reached completion. The project is located in Yangpu, at the core of the Wujiaochang cluster.

CBD rents continue to grow, though at a slower rate. Viewing growing competition from the decentralised market, landlords became more cautious in their pricing. Puxi Grade A rents edged up 0.6% q-o-q in 2Q16, the slowest pace in the past six quarters. Similarly, Pudong Grade A rental growth decelerated from last quarter’s 1.7% to 1.1% q-o-q in 2Q16. 

Strata-titled Office 

Strong demand and large volume of new supply continue to boost transaction volume. Sales volume in Shanghai’s high-end strata-titled office market reached 217,007 sqm in 2Q16, rising 77.4% q-o-q to set a new quarterly record. Domestic companies remained the main demand source, with particularly strong requirements from public listed companies. For example, the domestic listed firm East Money Information en-bloc purchased Yongfeng International Plaza Jinzuo to set up its headquarters. Seven projects with total GFA of 212,136 sqm entered the high-end strata-titled office market in 2Q16, and new launch volume for the full year is expected to reach 673,066 sqm. Sales prices were essentially flat during the quarter, edging up by only 0.3% compared with that in 1Q16. Looking forward, we expect buying demand from owner occupiers will remain robust, though Shanghai’s large amount of new supply will continue to constrain price growth.


Absorption in new completions offset by lease expirations. Net absorption in the non-bonded market reached only 2,640 sqm due to slow leasing progress in recent completions, as well as lease expirations that led to rising vacancy in existing projects. High inquiry levels indicated that overall demand was stable, however. E-commerce companies and their 3PL partners remained active. Performance among 3PLs varied: while some big players continued to expand across the city to serve end users' growing business, other small 3PLs chose to leave upon lease expirations after their clients pulled back from Shanghai. Non-bonded vacancy rose to 14.1% as a result of the quarter's large supply and low absorption. “Given that a large portion of existing vacant space is under serious negotiation with various tenant types, though, we expect the rise in vacancy to be short-lived,” said Stuart Ross, Head of Industrial for JLL China. 

Two projects by GLP reach completion. GLP completed two projects totalling 450,000 sqm: the non-bonded GLP Baoshan (250,000 sqm) and the bonded GLP Waigaoqiao (200,000 sqm). Both projects entered the market with limited leasing progress.

Rental growth remains flat on like-for-like basis. Non-bonded spot rents edged down to RMB 1.29 per sqm per day as GLP's Baoshan project offered generous incentives to attract tenants. However, chainlink rental growth remained nearly flat in spite of rising vacancy, as landlords sentiment was supported by solid inquiry levels.


Sales momentum fades after policy tightening. Buying activity plunged after the local government rolled out a new round of restrictions in late March. April sales volumes were down by more than half from March. For the quarter, Shanghai's primary market only recorded 3.2 million sqm sold, down 26% q-o-q. Sales in the high-end segment also fell 30% q-o-q to 609 units sold in 2Q16. Developers accelerated their new launches in 2Q16 in response to strong buying in the previous quarter. In the high-end market, eight projects put a total of 1,482 units onto the market for sale.

Prices stabilise as sales slow. After a surge in 1Q16, primary prices largely stabilised as sales lost momentum. On average, primary prices for high-end apartments edged up 0.9% q-o-q to RMB 101,516 per sqm. Secondary prices also stayed flat through the quarter.

Serviced apartments rents flat despite uptick in vacancy. In the leasing market, demand from expatriates remained subdued as few MNCs deployed new expatriates to Shanghai. Two new projects - One Sunland and Parkview Lanson Place - opened in the quarter, adding 370 new units to the leasing market. Diamond Court also re-opened this quarter after a major renovation. The addition of three projects combined with weak demand to lead overall serviced apartment vacancy to rise by 4.8 percentage points to 16.8% in 2Q16. Projects in good locations raised their rents to cover the new VAT burden. However, most projects kept their rents flat to retain tenants in a weak demand environment. On average, rents for serviced apartments remained unchanged in the second quarter.

Prices likely to remain stable under tight policy stance. With local housing policy likely to remain tight, sales volumes in both the mass market and the high-end will stay low through the remainder of 2016. Shanghai's strong market fundamentals mean that housing prices are not expected to have a correction, although inventories could rise significantly towards the year-end. “Despite fading sales momentum, developers remain upbeat over the medium- to long-term, as evidenced by the resurgence of land transactions in the past three months,” said Stephenie Zhou, Head of Residential for JLL Shanghai. “Supported by strong domestic in-migration, Shanghai's housing market still offers strong growth potential over the long run, given Shanghai's status as a global financial center.”


F&B and affordable luxury remain key demand drivers. Luxury retailers continued closing underperforming stores, while affordable luxury retailers expanded further into decentralized submarkets. “F&B expansion demand remained strong, notably from mid-range family restaurants and coffee and dessert shops,” said James Hawkey, Head of Retail for JLL China. Intensifying competition spurred several F&B chains to explore ways to deliver more creative experiences and presentation to engage consumers.

Some underperforming retail spaces are being adapted for office use. Greater competition and a slowing economy are leading landlords to explore ways to adapt underperforming retail spaces for more productive non-retail uses. For example, after closing for renovation in 2Q14, the Jing'an Golden Eagle Department Store recently leased its upper floors to Fountown, a coworking space operator.

One prime project and five decentralized projects open in 2Q16. Momentum for new supply continued to be strong in decentralized areas, while new additions in core Shanghai were more limited. In the core area, the 43,000 sqm Yangguang Center completed refurbishment near Huaihai Road with a focus on F&B. In the decentralized market, Hongqiao Vanke Center, Sun City, Bingo Phase 2, Daning Music Plaza and Ufun Plaza opened with a total GFA of 232,937 sqm. Vacancy increased slightly to 9.6% in prime areas as existing malls in mature markets such as West Nanjing Road and Xujiahui adjusted tenants. Vacancy rose to 9.9% in the decentralized market as new projects opened with vacancy above the market average. 

Rental levels edge up in both prime and decentralized markets. In the prime market, open-market ground floor base rents rose 3.0% y-o-y to RMB 53.3 per sqm per day. Decentralized rents rose 4.6% y-o-y to RMB 21.3 per sqm per day. Rental growth slowed in submarkets like Wujiaochang and Lujiazui where large supply pipelines have made landlords more conservative.

Capital Markets

Market quiet in the first half, but uptick in transactions expected in 2H16. Due to strong interest stemming from investors’ desire to park money in safe tier-one cities, a number of vendors have increased expectations on en-bloc sales prices. With the low current market yield, especially for CBD assets, further yield compression will likely prolong decision making on deals. In addition, the China Insurance Regulatory Commission’s (CIRC) recent requirement to increase insurers’ disclosures and inspections is likely to create delays in real estate transactions. Despite limited transactions in 1H16, we expect a stronger second half, as deals under negotiation in 1H16 should likely be closed in 2H16.

Office appetite remains, especially from domestic buyers. Although there were limited office transactions in 2Q16, demand for office assets in Shanghai remained strong. In particular, domestic capital is benefitting from greater access to financing instruments. In addition to properties in the Shanghai CBD, buyers are paying attention to opportunities in decentralized offices and business parks, with a focus on high-quality properties with stable rents. Buyers also are looking at opportunities for renovation or re-development, as with the case of China Estates’ sale of Evergo Tower in Xuhui District to Real Power Capital for RMB 1.15 billion.

Continued investor interest in logistics sector. As a result of limited supply, there were few en-bloc transactions in 2Q16. In greater Shanghai, the only notable deal came in the late of 2Q16, with Goodman Group buying Ascendas’ logistics center in Jiashan. The warehouse has a GFA of 35,000 sqm, and was sold for RMB 125 million (USD 19.1 million). Like other interested buyers, Goodman bought the facility as it expects continued double-digit e-commerce growth, which will drive the demand for modern logistics facilities.

– end –​

>>>Read more about JLL News
>>>Read more about​ JLL Research


​About JLL

JLL (NYSE: JLL) is a professional services and investment management firm offering specialized real estate services to clients seeking increased value by owning, occupying and investing in real estate. A Fortune 500 company with annual fee revenue of $5.2 billion and gross revenue of $6.0 billion, JLL has more than 280 corporate offices, operates in more than 80 countries and has a global workforce of more than 60,000. On behalf of its clients, the firm provides management and real estate outsourcing services for a property portfolio of 4.0 billion square feet, or 372 million square meters, and completed $138 billion in sales, acquisitions and finance transactions in 2015. Its investment management business, LaSalle Investment Management, has $58.3 billion of real estate assets under management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information,

JLL has over 50 years of experience in Asia Pacific, with over 33,000 employees operating in 92 offices in 16 countries across the region. The firm won 15 awards at the International Property Awards Asia Pacific in 2016 and was named number one real estate advisor in Asia at the 2015 Euromoney Real Estate Awards.  

​In Greater China, the firm was named ‘Best Property Consultancy in China’ at the International Property Awards Asia Pacific 2016, and has more than 2,200 professionals and 14,000 on-site staff providing quality real estate advice and services in over 80 cities across the country.​​​​​​​​