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News Release


Decentralized offices perform well despite large supply

​​​According to JLL Shanghai Third Quarter Property Review

Shanghai, October 11, 2017 – Shanghai's office market remained active with domestic financial service firms, TMT companies, and coworking operators leasing space in the CBD. "The decentralized office​ market continued to perform strongly, with vacancy falling and rents rising even as the market experienced a large wave of new supply," said Eddie Ng, Managing Director for JLL East China. High-end residential prices continued to rise on limited supply and solid demand from local upgraders. In the retail market, five new completions made the third quarter the year's most active so far. Logistics rental growth accelerated as supply remained limited and vacancy declined. Office and hotel deals dominated Shanghai's investment​ market in a quiet quarter for overall investment volumes.


Strong upgrade demand helps fill new Grade A space. Leasing demand in the CBD continued to be led by domestic financial services companies, particularly those in the asset management and securities sectors. Technology, media, and telecommunications (TMT) firms also contributed to take up as they continued to upgrade and expand. "Coworking operators also expanded in the CBD, as multiple high-profile operators secured locations," said Anny Zhang, Head of Markets for JLL Shanghai. The decentralized market remained active, with Pudong demand feeling the effects as some companies looking to save costs considered decentralized options. Firms upgrading and expanding from older Grade A and B buildings drove demand for new space, while also leading to heightened vacancy in those older buildings.

Pudong Expo area sees wave of new completions. No new projects reached completion in the CBD. While leasing activity remained steady, competition from the decentralized market led CBD vacancy to rise slightly, up 0.1 pps q-o-q to 12.5%. In the decentralized market, nine projects with a total GFA of 397,000 sqm reached completion, of which eight were located in the Pudong Expo area. As the majority of those projects are reserved partially or completely for self-use, overall decentralized vacancy fell by 1.5 pps to 24.2% despite the new supply.

Robust demand supports rental growth in the decentralized market. While the CBD saw moderate leasing, older properties felt rental pressure as space was vacated by tenants' upgrade and expansion activity. As a result, overall CBD rents recorded a slight decline of 0.3% q-o-q. Meanwhile, rents in the decentralized market - and particularly in fringe CBD areas - continued to gain momentum, with rents rising 1.3% q-o-q.

Strata-titled Office

Capital values rise on strong demand and limited supply. Inquiry levels remained strong, particularly from tenants seeking to buy space for self-use. A lack of new completions this quarter, however, limited buying opportunities and contributed to sales volumes reaching only 58,129 sqm in 3Q17, down 55.7% from the quarter before. Limited inventories and lack of new supply helped landlords remain confident, particularly in popular submarkets such as Hongqiao Transportation Hub, North Sichuan Road & North Bund, and Dalian Road. Capital values rose 1.7% y-o-y to RMB 42,262 per sqm. Looking ahead, strong demand and limited supply are expected to support price growth over the next twelve months.


Tight policy continues to weigh on overall sales volume. Policy remained tight as some commercial banks stopped offering discounts on mortgage rates and raised down payment requirements for first-time buyers. The quarter ended on a subdued note with mass market sales volume down 51% in September compared to a year before, and down 59% q-o-q for the quarter as a whole. In the high-end market, demand from local upgraders remained stable, though restrictive policy and limited supply kept sales volumes subdued. High-end sales in 3Q17 declined to 186 units, a decrease of 63% q-o-q and 82% y-o-y. High-end inventory fell 7%, while the clear-up period rose to about 15 months.

Supply down as developers delay new launches. New supply declined in both the mass market and the high-end. Many developers delayed launching new units as they awaited a more favorable policy environment. In addition, strict controls on pre-sales permits has also curbed new supply. There were no new high-end launches this quarter. Developers remained cautious in the land market as most residential-use land plots were sold at the reserve price this quarter. High accommodation values and financing restrictions have continued to squeeze developers' margins. 

High-end prices continue to rise despite slowing sales. High-end prices rose a further 0.5% q-o-q as developers remained confident, supply was limited, and local upgraders generated solid demand. Rental values similarly rose 0.5% q-o-q as Shanghai's robust job market generated steady demand from both local and non-local white-collar employees.

Housing policy to remain firm over the next twelve months. "We maintain our expectation that continued tight policy will put pressure on sales volumes and new supply," said Stephenie Zhou, Head of Project Sales for JLL Shanghai. "That said, sales prices are unlikely to decline over the next twelve months as developers maintain leverage to raise prices due to low inventory levels." Additionally, stable leasing demand will result in moderate rental increases. The leasing market may be set for change as the Shanghai government has zoned land for lease-only apartments to cater to non-local residents. So far, though, such land plots have only been sold to government-backed developers, at prices well below the residential average. Impacts on the leasing market over the next year will be limited as most projects are still in planning stages.


Strong leasing from cosmetics and casual dining brands. Retailer sentiment continued to improve over the third quarter. "International sportswear and casual clothing brands maintained their expansion momentum, while landlords continued to welcome demand from cosmetics brands which generally have good rental affordability," said James Hawkey, Head of Retail for JLL China. Casual dining and beverage shops aggressively expanded even as some brands turned to ever-more creative promotions to stand out in a competitive marketplace. The quarter saw further expansion by grocery chains such as M&G Shop and Kule Chaowan. Such stores offer a broad variety of popular consumer goods and seasonal items, and landlords expect them to help diversify tenant mix and extend visitor dwell times.

Five projects delivered in 2017's most active quarter so far. F&B-focused Feng Sheng Li opened in West Nanjing Road, while SOHO Bund opened in the Bund area targeting white collar professionals. In decentralized areas, community mall KiNG88 debuted in Changning, and Capital Square opened in the former Zhabei District with a heavy emphasis on F&B. The quarter's highest-profile new project was the MixC in Minchang, which opened in late September with high occupancy. Overall supply was 342,691 sqm, making 3Q17 the most active quarter since the end of 2016. Vacancy in prime areas rose slightly to 10.7% as new supply reached market with vacancy above market average. Decentralized vacancy decreased from 9.7% to 8.5% despite the quarter's wave of supply, as occupancy rose in existing projects such as Chamtime Plaza.

Rental growth further accelerates. Prime open-market ground floor base rents increased by 3.5% y-o-y to RMB 52.2 per sqm per day. Decentralized rents rose 4.4% y-o-y to RMB 20.3 per sqm per day. Rental growth was driven in particular by improving performance in East Nanjing Road and Huaihai Road, which benefitted from strong street-facing retail and project repositioning.


Net absorption reaches 75,000 sqm despite lack of new completions. After rapid leasing in new projects boosted absorption in 2Q17, demand from 3PLs and retailers kept take-up at a still-strong 75,000 sqm. "Projects delivered in 1Q17's supply wave continued to make leasing progress despite locations in less mature submarkets," said Stuart Ross, Head of Industrial for JLL China. Two first quarter completions alone accounted for 50,000 sqm of the quarter's take-up. With vacancy near zero in most of the popular West Shanghai submarkets, tenants looked instead to projects in Baoshan, Fengxian, and Jinshan. These once quiet submarkets are becoming popular with firms that prioritize proximity to customers in Shanghai.

Vacancy down on strong demand and lack of new projects. No new supply was completed this quarter, leaving total non-bonded stock at 5.1 million sqm. We do not anticipate any new supply in the market for the rest of the year. Limited supply and strong leasing demand led non-bonded vacancy to decline 1.5 pps to 7.6%. Vacancy in the emerging submarket Jinshan declined from 28% to 9% as space was taken by 3PLs. Western Shanghai vacancy remained near zero with only small leases for frictional space.

Rental growth accelerates. Non-bonded rents edged up 0.6% q-o-q to RMB 1.32 per sqm per day, up slightly from the previous quarter. Strong demand and the continued absence of new supply pressure gave landlords greater confidence to raise rents.

Capital Markets

Wanda deal makes 3Q17 a big quarter for hotel deals nationwide. Total 3Q17 transactions in China reached RMB 43.5 billion, down 30.3% y-o-y. Deals in Shanghai represented 13.7% of the quarter's total investments. Wanda's sale of an RMB 20 billion hotel portfolio to R&F Properties led hotel deals to account for 56.4% of all transactions in China this quarter.

Offices and hotels lead Shanghai transactions in slow quarter. Total investments in Shanghai reached RMB 5.9 billion, representing a 65.6% q-o-q decline and a 76.5% fall y-o-y. The quarter's limited transaction volume was attributed to limited quality assets available for sale, as well as sellers' firm pricing strategies leaving limited discounts for buyers and prolonging decision-making on potential deals. Offices continued to be the dominant asset type with transactions of RMB 4.2 billion accounting for 70% of Shanghai's total. Hotels and industrial assets came in second and third, with transaction volumes of RMB 1.4 billion and RMB 400 million respectively accounting for 23.3% and 6.7% of Shanghai's total.

Shanghai transaction levels set to rise in 4Q17. Despite a relatively quiet 3Q17, investors continue actively looking for investment opportunities in Shanghai. "We expect to see several transactions that were under negotiation in 3Q17 reach completion in 4Q17. " said Johnny Shao, Head of Capital Markets for JLL Shanghai and East China. "As investors move to finalize deals before the end of the year, Shanghai's transaction levels are likely to see a rebound in the fourth quarter."

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About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. In 2016, JLL had revenue of $6.8 billion and fee revenue of $5.8 billion and, on behalf of clients, managed 4.4 billion square feet, or 409 million square meters, and completed sales acquisitions and finance transactions of approximately $145 billion. At the end of the second quarter of 2017, JLL had nearly 300 corporate offices, operations in over 80 countries and a global workforce of nearly 80,000. As of June 30, 2017, LaSalle Investment Management had $57.6 billion of real estate under asset management. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information​​, visit

JLL has over 50 years of experience in Asia Pacific, with 36,800 employees operating in 95 offices in 16 countries across the region. The firm won the ‘World’s Best’ and ‘Best in Asia Pacific’ International Property Consultancy at the International Property Awards in 2016 and was named number one real estate investment advisory firm in Asia Pacific for the sixth consecutive year by Real Capital Analytics.​​  

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​.​​​​​​​​​​​