Leasing and investment momentum continues to strengthen across Shanghai’s commercial real estate sector

Shanghai, July 14, 2026 – Shanghai’s commercial real estate market continued to recover in 2Q26, with leasing and investment activity showing further improvement across most sectors. According to Neo Huang, Head of Office Leasing Advisory for Shanghai and Head of Retail for East China, JLL, “In 2Q26, Shanghai’s Grade A office market continued its recovery, with the share of large-area leasing transactions increasing. Rental declines moderated, although rental performance across submarkets continued to diverge.” Retail market recorded higher net absorption, supported by steady leasing progress in several newly completed projects, while the emergence of large-format flagship stores became a notable trend in Shanghai. In the logistics sector, leasing activity remained active, with tenants continuing to expand their footprint amid continued rental declines, while performance across submarkets remained divergent. Shanghai’s investment market recorded 27 transactions in the quarter, with total transaction value increasing by 14% year-on-year. In the hotel sector, both occupancy and average daily rate recorded solid growth, supported by robust domestic and international travel demand.

In 2Q26, Shanghai’s Grade A office market saw continued recovery in leasing activity, with total net absorption reaching 232,200 sqm. “Leasing activities continued to improve while the overall market continued to benefit from upgrading demand. Several high-quality projects attracted active leasing activities,” said Jacky Zhu, Deputy Head of Office Leasing Advisory for Shanghai, JLL. In the CBD, net absorption reached 106,200 sqm. Financial and professional services remained the dominant drivers in the market. Net absorption in the decentralised market recorded 125,900 sqm. The TMT sector, particularly gaming and AI-related companies, maintained their leasing momentum.

Two Grade A office projects totalling 135,400 sqm entered the market in 2Q26. Overall market vacancy rate edged down 0.7 ppts q-o-q to 23.5% as leasing activities picked up. Despite supply influx putting pressure on the CBD market, the CBD vacancy rate remained largely flat at 19.3% amid active upgrading relocations. No new completions entered the decentralised market this quarter. Tech companies’ expansion requirements along with upgrading demand from Grade B projects drove down vacancy rate by 1.2 ppts q-o-q to 27.1%.

Rental decline slowed down while project-level rental divergence continued to widen. In the CBD, rents decreased by 1.2% q-o-q to RMB 6.3 per sqm per day. Landlords of several premium projects tightened their negotiating stance and dialled back on lease-term flexibility as occupancy reached a relatively higher level. In the decentralised market, rents decreased by 1.0% q-o-q to RMB 4.1 per sqm per day. Rental performance across submarkets diverged further as several submarkets with active leasing momentum showed deceleration in rental decline. However, large available spaces continued to keep rents under pressure.

In 2Q26, net absorption in Shanghai’s business park market reached 205,000 sqm. According to Stephen Yu, Head of Business Park Services for JLL Shanghai Office Leasing Advisory, “TMT companies, particularly those from the AI and IC subsectors, remained a key source of demand. Demand from life sciences firms also showed signs of recovery, while demand from industrial incubators and research institutions stayed resilient.”

Two new projects totalling 164,400 sqm of GFA were completed in this quarter. The overall vacancy rate went down by 0.7 ppts q-o-q to 31.7%. Stacked up available space continued to weigh on rents, which declined by 1.0% q-o-q to RMB 3.3 per sqm per day.

In 2Q26, Shanghai's urban area recorded 204,500 sqm in net absorption, supported by steady leasing progress in several newly completed projects. Leasing demand from sportswear and collectible toy brands remained solid in 2Q26, supported by consumers' growing focus on wellness and emotional fulfilment. Affordable dining and consumer electronics brands also remained active in expanding their footprints, playing a crucial role in driving momentum in Shanghai’s retail sector.

In the first half of 2026, Shanghai’s prime retail market saw the continuation of “flagship store wave,” marked by the opening of many new large-format flagship stores exceeding 1,000 sqm. Notable openings included Dolby’s first global flagship experience centre at Zhangyuan and Hyundai Motor’s UX Studio in the Jing’an Temple area. More than 20 large-format flagship stores from leading brands opened in Shanghai between the second half of 2024 and the first half of 2026, with the average store size exceeding 1,100 sqm. This trend not only highlights the growing popularity of large-format flagship stores but also reflects retailers’ increasing preference for larger, benchmark-setting retail spaces. “An increasing number of brands are redefining the value of physical retail through these large-format flagships. These stores no longer serve solely as points of sale; they have evolved into showcases for brand identity, social hubs for consumers, and immersive destinations that embody new lifestyles,” said Neo Huang.

In 2Q26, one project with a GFA of 32,000 sqm reached completion in the prime area. Despite the new completion, prime area vacancy rate remained flat at 8.1%, bolstered by stable leasing activities in both existing and new projects. The decentralised area saw two new projects with a combined GFA of 237,500 sqm launched in 2Q26, slightly pushing up the average vacancy rate up by 0.2 ppts q-o-q to 13.7%.

Rents remained in downward cycle this quarter as landlords continued to prioritise occupancy by providing rental concessions. In 2Q26, prime ground-floor rents fell 0.8% q-o-q to RMB 41.4 per sqm per day, while decentralised rents fell 1.2% q-o-q to RMB 14.1 per sqm per day.

Neo Huang remarked, “we expect retail leasing momentum to remain steady across key sectors such as sportswear, collectible toys, consumer electronics, and affordable dining going forward, driven by growing consumer preferences for wellness, emotional fulfilment, and value for money.”

In 2Q26, leasing activities remained robust, recording over 242,000 sqm of net absorption. Local 3PLs and retailers continued to leverage the tenant-favourable market conditions to upgrade their storage facilities. The overall vacancy rate decreased by 2.0 ppts to 23.2% in 2Q26 as rental decline in some remote submarkets attracted tenants with low delivery frequency requirements. Meanwhile, 3PLs expanded their footprint ahead of mid-year shopping festivals.

A new project in the Qingpu submarket was completed in 2Q26, delivering 36,400 sqm of space. Three additional projects are set to complete in 2H26, adding over 439,000 sqm of space and signalling a clear moderation from previous peaks. The Songjiang submarket faces further supply pressure as two new projects totalling over 306,000 sqm will enter the market in 2H26. The influx of new supply further intensifies competition as the submarket's stock has grown by circa 20% in the last two years.

Overall rents decreased by 2.9% q-o-q to RMB 1.05 per sqm per day in 2Q26, a slowdown compared to 1Q26 (-3.4% q-o-q). Hong Yin, Head of Logistics & Industrial for JLL China remarked, “Although the overall vacancy rate is projected to remain above 20% from 2026, exerting downward pressure on rents, the decline is expected to moderate with diverging performance across submarkets. Meanwhile, with rents in some Shanghai submarkets declining more than 20% over the past year, tenants from surrounding areas may be drawn back to Shanghai.”

In 2Q26, Shanghai’s investment market recorded a total of 27 en-bloc transactions, with a combined transaction volume of approximately RMB 12.4 billion, representing a 14% increase year-on-year. In terms of transaction structure, the quarter saw closings of large-scale office and commercial projects, with these two asset classes collectively contributing around 80% of the total transaction volume. By geographic location, investment activity within the Inner Ring Road and beyond the Outer Ring Road remained active, with the latter emerging as a highlight due to consecutive transactions of low-priced properties.

By investment purpose, self-use demand rose to 45% in the quarter, up steadily from 42% in 1Q26 and significantly higher than the 18% recorded in the full-year 2025. The rise in the share of self-use transactions reflects corporates’ strategic tendency to lower long-term operating costs through property acquisitions.

Driven by the maturation of commercial real estate REITs, retail assets are becoming increasingly attractive to investors. Given the scarcity of large-scale retail properties available for sale in Shanghai, Songjiang Wanda Plaza was resold this quarter after having been held by institutional investors for three years. This indicates that high-quality shopping malls with stable occupancy rates and mature customer footfall remain the preferred investment targets for institutional capital.

Ling Sun, Head of JLL Capital Markets East China, commented, “Compared with other asset classes, shopping malls rely heavily on professional operational management and offer significant potential for rental growth. We expect investment activity in the retail sector to strengthen going forward.”

Shanghai’s hotel market delivered robust performance in the first half of 2026, with both occupancy and average daily rate (ADR) recording solid growth, supported by robust domestic and international travel demand. From January to May 2026, Shanghai welcomed 4.38 million international visitors, up 29.1% year-on-year. Surging inbound tourism drove strong performance in the upper-midscale, upscale and luxury sectors. In particular, luxury hotels led the growth, posting a 3-percentage-point increase in occupancy and a 7% rise in ADR. According to government data, the city welcomed 7.12 million visitors during the Dragon Boat Festival holiday, up 9.9% from same period last year.

In the first half of 2026, Shanghai added 770 upscale and luxury hotel rooms to its inventory. Notable openings include the Andaz Shanghai ITC in Q1, followed by the Kimpton Shanghai 9 Tree Art Center and the Shanghai Marriott Hotel Songjiang in Q2. At the same time, asset enhancement initiatives continued to gain momentum. Hongqiao Jin Jiang Hotel successfully rebranded under the dual brands of Swissôtel Living and Handwritten Collection after renovations, while the Yangtze Boutique Shanghai completed its rebranding to the TUI Blue brand.

“The market’s robust recovery highlights the enduring value of China’s hotel assets. Coupled with the wave of asset upgrades, this momentum paves the way for Hotel REITs and accelerates the industry’s shift toward asset-light models and professional asset management,” said Tao Zhou, Managing Director, Hotels & Hospitality Group, JLL Greater China.