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SHANGHAI, 24 October 2017 - Shanghai's decentralised Grade A office market has witnessed a recent growth spurt, driven by rising tenant demand and rapid urban development. Drawing from JLL's internal research and a survey of tenants and investors, JLL's latest research report "Shanghai's Decentralised Office Market: at a tipping point" takes an in-depth look at the current status of the city's decentralised office market, analyses the factors driving its growth, and addresses the prospects of its various submarkets.
Shanghai's decentralised Grade A office stock was a mere 400,000 sqm in 2009; today, it has grown to 5 million sqm, comparable to the size of the central business district (CBD). Furthermore, approximately 61% of the city's Grade A net take-up over the past four quarters has come from the decentralised market, compared with only 26% in 2009. "Shanghai is accelerating towards becoming a brilliant global city. Emerging submarkets will enjoy ongoing dividends in the long run as the overall market grows. At the same time, decentralized commercial areas also will support the future development of Shanghai, providing the space necessary for fast urban development and becoming new engines for urban growth," said Eddie Ng, JLL's Managing Director for Shanghai & East China.
Daniel Yao, Head of Research, East China, JLL said, "The traditional CBD can no longer contain the city's increasingly varied office demand. Under these circumstances, the recent rise in decentralised Grade A office supply has brought Shanghai's real estate market one step closer to maturity."
JLL's tenant survey shows the following six factors are driving the decentralised market's current vibrancy:
JLL's survey of 20 decentralised Grade A buildings completed over 2012-2017 shows that only 19% of newly leased space went to tenants relocating from CBD Grade A offices. Instead, the majority of leasing came from tenants upgrading from Grade B buildings in both the CBD and decentralised markets. This indicates that decentralised market's rise will not have a strong impact on the CBD Grade A office leasing market.
Anny Zhang, Head of Markets Shanghai, JLL said, "With the steady growth of Shanghai as a global gateway city, many firms are facing the need to upgrade, expand or consolidate their offices. The decentralized market is well-placed to satisfy mid-market tenants' demand for office upgrades."
Cost remains one of the top considerations for firms choosing new office space. Shanghai's CBD is expected to be undersupplied in the middle-to-long term. The tighter market there will lead CBD rents to grow at a steady pace, guaranteeing the CBD will maintain a rental premium vis-à-vis the decentralised market in the longer term. JLL's occupier survey indicates many tenants will be attracted by lower decentralized rents: 23% of respondents expressed strong interest in decentralised locations that offered a discount of RMB 2 per sqm per day compared to the CBD; a further 15% were interested in discounts of at least RMB 3 per sqm per day.
According to Shanghai's city planning, the decentralisation trend can spur development of secondary office locations, which can ease pressure on the city's CBD and its surrounding infrastructure. Secondary commercial areas can also help improve Shanghai's cost competitiveness by providing new and growing businesses with a diverse, steady supply of alternative office space.
Shanghai contains over a dozen major decentralised submarkets at varying levels of development. JLL has introduced an evolution curve to assess each decentralised submarket's current status and dividing them into Early Growth, Transitional and Mature phases. Once they reach the "Mature" stage, some decentralised submarkets are able to achieve "lift off", merging into the CBD asset performance trajectory and becoming part of the CBD in their own right. Most of the decentralised markets remain in the "Transitional" stage, but several are expected to follow and eventually move up the CBD curve as they enter the "Mature" stage.
Over the next ten years, JLL expects to see notable changes at the micro-level in the future of work. Developers will increasingly look beyond improvements in traditional specifications and focus instead on innovative technology, healthy workspace, co-working and other elements favoured by Shanghai's talented young workforce. With more land reserves than the CBD, the decentralized market has more flexibility to lead the future of work in Shanghai's office market.
In recent years, decentralised submarkets have been active other Tier 1 cities across China, including the Wangjing area in Beijing, Pazhou in Guangzhou and Houhai Headquarters Base in Shenzhen. Rental advantages and new high quality properties in these submarkets have attracted many tenants who wish to expand, consolidate, or upgrade their offices. In recent years, Hong Kong's mature office market has experienced its own accelerated decentralisation trend. The city's most established decentralised market is Hong Kong East, the tenant base of which is being transformed thanks to an influx of financial and professional services firms relocating out of Central.
download the report "Shanghai's Decentralised Office Market: at a Tipping Point "
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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 www.jll.com.
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. www.jll.com/asiapacific
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. www.joneslanglasalle.com.cn
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