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News Release


JLL Shanghai Third Quarter Property Review

Decentralised offices remain hot; Overall transaction volumes rise

​SHANGHAI, 13 October 2016 – “In the Pudong CBD, low vacancy allowed rents to continue edging up. On the other hand, large supply and competition from the decentralized market led to a slight increase in Puxi CBD office vacancy, as well as a dip in rents.” said Eddie Ng, Managing Director for JLL East China. Investment activity was strong in the third quarter, notably in the retail sector. In the residential sector, rumors of future policy tightening led to a surge in both home sales and prices in August, though we expect the market to stabilize going forward. In the logistics market, strong demand from 3PLs and e-commerce firms led to the absorption of much of the space th​at went on the market in the previous quarter.  Three shopping malls opened in decentralized areas while experience-oriented retailers and brands promoting fitness and healthy living made progress generated significant leasing activity.  


Decentralized market absorption makes up for CBD slowdown. In the CBD, rapid rental growth over the past year has outpaced some companies’ rental affordability, leading some firms to seek affordable options in the decentralised market. Disruption in the P2P industry – including early lease terminations and a ban on registration of new P2P companies - continued to negatively affect net absorption. The CBD recorded net absorption of 31,945 sqm in Q3, down 56% from the same time last year. “An encouraging trend for the quarter was consistently strong demand in the decentralised market, where companies continued to look for upgrade, consolidation, and cost-saving options,” said James Allan, Head of Markets for JLL Shanghai. The decentralised market recorded net absorption of 124,107 sqm in Q3.

Puxi CBD vacancy up due to slower demand and new supply. Three developments reached completion in the Puxi CBD: HKRI Centre One (95,725 sqm), Raffles City Changning T2 (32,418 sqm), and Bund Finance Center N1/2/3 (29,010 sqm). The new supply partially contributed to an increase in Puxi CBD vacancy, which rose 3.8 ppts q-o-q to 7.6%.  There were no new completions in the Pudong CBD, where vacancy was basically unchanged at 6.5%. In the Puxi decentralised market, Gopher Center (59,775 sqm) and Hongqiao Vanke Center Ph2 (40,036 sqm) were completed. Decentralised market vacancy declined 1.1 ppts q-o-q to 15.8% despite the quarter’s large supply.

Rents stable in Pudong CBD, down in Puxi CBD. The Puxi CBD recorded a rental decrease of 1.0% q-o-q as vacancy rose. In light of competition from the decentralised market, landlords of older CBD projects are more willing to offer discounts to retain tenants. In Pudong, rental growth also slowed down during the quarter, edging up by only 0.3% q-o-q. 

Strata-titled Office 

Strong demand continues to support transaction volumes.  Sales volume in Shanghai’s high-end office market reached 169,027 sqm in 3Q16, rising 101.8% y-o-y. The Hongqiao Transportation Hub continued to attract much of buyers’ interest, with 90,429 sqm sold contributing 53% of the quarter’s transacted space. Major transactions (those whose value exceeds RMB 30 million) continued to account for a large proportion – about 71% - of sales volume. However, projects with small units available for sale also saw considerable activity in this quarter, with properties like U Center and Jinyuan Center showing that demand from individual investors and small enterprises remained stable. Sales prices moderately increased 0.7% q-o-q due to stable demand from both investors and self-users.

Capital Markets

Strong demand leads to rise in overall transactions. Investors’ desire to invest in high quality assets was strong in 3Q16, leading into a rebound in overall transaction volumes in Shanghai. This was true even as ample liquidity in the domestic market and low interest rates led sellers to remain firm on prices, which has prolonged the decision making process on several potential deals. Shanghai’s total transaction volume reached RMB 24.2 billion in 3Q16, representing a 146% increase q-o-q increase as well as a 75% y-o-y gain.

Retail sector emerges as highlight. Retail demand was strong in the past quarter, as investors sought retail assets with good tenant mixes in good locations. For example, Singapore’s sovereign fund GIC and mainland insurer China Life bought a 49% equity share in Shanghai’s Joy City mall as COFCO sold a portfolio for a consideration of RMB 9.29 billion. In addition, Chongbang Development conducted an 80% equity stake buyback of Shanghai’s Jinqiao Life Hub from Keppel Land and Alpha Investment Partners, for RMB 5.5 billion.

Office transaction volume limited, but investors remain interested. Office transactions decelerated in 3Q16, due in part to the limited number of quality assets available for sale, as well as extended decision-making processes for deals underway. Total office transactions in Shanghai reached RMB 9.7 billion in 3Q16, down 26% q-o-q and down 34% y-o-y. Major en-bloc office transactions included SOHO China’s RMB 3.2 billion sale of SOHO Century Avenue to Guohua Life Insurance.

Insurers planning to expand real estate exposure. China’s domestic insurance firms looking to diversify their portfolios are looking more carefully at income-producing real estate assets such as office buildings, hotels, shopping malls, warehouses, and senior housing developments. Johnny Shao, Head of Capital Markets for Shanghai and East China, said: “yield compression in certain sectors is a potential hurdle, but we expect investment activity by insurers to continue growing nonetheless.” Guohua Life Insurance’s purchase of SOHO Century Avenue this quarter demonstrates insurers’ appetite for safe, liquid assets in China’s Tier 1 cities, with more expected in the future. 


3PLs and e-commerce firms drive a rebound in net absorption. “Strong take-up vindicated our projection that the previous quarter's low absorption and rise in vacancy would prove temporary,” said Stuart Ross, Head of Industrial for JLL China. “Most space that opened up in 2Q16 was backfilled over the past few months, with space in West Shanghai especially popular.” 3PLs and e-commerce firms continued to drive demand. For example, a local 3PL leased all of Vailog's new project in Minhang. Meanwhile, an online baby product retailer expanded 20,000 sqm in GLP's Pudong Airport project. Manufacturers and auto makers also contributed to the quarter's take-up of 194,000 sqm.

One project by Vailog reaches completion. Vailog delivered its Xinzhuang project in Minhang this quarter, adding 38,000 sqm to the popular West Shanghai market. The entire project has been fully leased to a local 3PL serving customers in a nearby industrial park. Limited supply and strong take-up led non-bonded vacancy to decline from 14.1% in 2Q16 to 10.8% this quarter. With vacancy in West Shanghai down to pocket space, tenants seeking locations in Shanghai will need to consider space in East Shanghai or emerging areas such as Baoshan and Jinshan, where leasing activity has been rising over the past few quarters.

Rental growth remains moderate. Rental growth picked up slightly compared to that of 2Q16 amid strong take-up and declining vacancy. However, q-o-q growth still came in below 1% as prospects diverged across submarkets. Landlords of projects with high vacancy still prioritize reducing vacancy by keeping rents flat.


Sales surge in August due to rumours of further restrictions. Rumours (later proven untrue) that September would bring further tightening in housing policy spurred panic buying and a sales surge in the final days of August. Sales fell back in September, but the August spike caused quarterly mass market sales volumes to rebound by 32.7%, and high-end sales to rise by 70%. On the supply side, mass market new launches dropped by 40.9% from 2Q16. Seven high-end projects launched a total of 1,126 units for sale in 3Q16, of which 238 units or 21.1% were purchased over the quarter. Developers remained keen on land acquisitions in Shanghai. On average, transaction prices achieved a premium of 112% over the reserve price, as competition for plots remained intense.

Sales spike spurs further price rises. Strong buying momentum strengthened developers’ pricing power. Primary prices for high-end apartments grew at a faster rate in 3Q16, growing an average 1.5% q-o-q on a like-for-like basis to RMB 103,126 per sqm, up from mild growth of 0.9% q-o-q in 2Q16. The secondary market price trend followed a similar pattern, with prices rising 3.0% q-o-q. The rise in capital values, coupled with a slight dip in rents, led to a compression in investment yields. 

Small dip in serviced apartment rents. In the leasing market, rents showed a minor correction for the first time since 2009, declining 0.45% q-o-q, due mainly to a seasonal slowdown in leasing activity. The slowdown is unlikely to signal a deterioration in the rental trend; Shanghai's attractiveness to global talent means that the medium- to long-term outlook remains positive.

Market likely to stabilize after unexpected rebound. “August's rumours notwithstanding, the policy stance is expected to remain at its current tight level, with some potential for further restrictions if the government feels it necessary to tame price growth,” said Stephenie Zhou, Head of Residential for JLL Shanghai. “As such, both sales volume and prices are likely to stabilise in the short term.” Record-high land prices indicate developers remain upbeat over the medium- to long-term outlook. We also remain optimistic about long-term growth, though prices may not quite match the loftier expectations of some developers.


Strong leasing momentum from experience-oriented retailers. F&B demand remained robust, especially from Chinese regional cuisine restaurants targeting middle-income customers, as well as coffee and tea shops. Luxury retailers such as Dunhill continued to adjust store portfolios, while major fast fashion brands including Zara and Gap slowed their rates of expansion. Children's entertainment remained very active. “Gyms and yoga centers catering to consumers' rising embrace of fitness are increasing their presence in across China,” said James Hawkey, Head of Retail for JLL China. “We also are seeing healthy eating emerging as a key trend with restaurants selling juices and other health foods expanding, and organic concepts doing well especially in Tier 1 cities like Shanghai.”

Three decentralized projects open in 3Q16. In Pudong Jinqiao, Jiujin Plaza and Jinqiao Taimao Plaza both target local residents by focusing on fast fashion and F&B. Qibao Powerlong City Plaza opened in Minhang with art and culture attractions. The projects added a combined 167,000 sqm to decentralized stock, and each opened with occupancy above 60%, contributed to an uptick in decentralized vacancy to 10.1%.  There was no new supply in prime areas this quarter, but vacancy rose slightly to 10.3% as intense competition forced less competitive projects to adjust tenants, notably in mature submarkets such as West Nanjing Road and Huaihai Road. 

Rental growth slows amid large supply and fierce competition. Prime open-market ground floor base rents rose 2.8% y-o-y (0% q-o-q) to RMB 52.3 per sqm per day. Decentralized rents rose 3.0% y-o-y (-1.4% q-o-q) to RMB 20.8 per sqm per day. Rental growth slowed amid large future supply and rising competition, particularly in saturated submarkets and projects with poor metro access.

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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 $59.1 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 34,000 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.​​​​