Overall net absorption reached 48,000 sqm in the fourth quarter and totalled 269,000 sqm for 2022 as a whole. Most tenants remained cautious amid lingering pandemic effects and deferred leasing decisions. That said, emerging industries such as new energy vehicles (NEVs) remained active and led leasing momentum. For example, Bosch Cross-Domain Computing Solutions (Shanghai) R&D Center leased 11,000 sqm in Jinqiao Zhi Li Fang. In terms of new supply, five projects reached completion in the quarter and delivered a total GFA of 291,000 sqm. The large supply led the overall vacancy to rise to 12.6%. Landlords adjusted expectations in line with tenants’ cautious leasing. Overall rents decreased slightly by 0.2% this quarter, remaining nearly flat at RMB 4.6 per sqm per day. For the year as a whole, rents were up 0.8%.

Lingering pandemic effects and a still-tight local housing policy led buying momentum to moderate towards the year end. As a result, mass market primary sales volumes declined 27.5% q-o-q to 2.7 million sqm in 4Q22. The year concluded with annual sales of 10.3 million sqm, down 4.0% y-o-y. Sales performance diverged between projects. Good-value projects in prime locations were still in high demand, while other projects saw slower sales. In 4Q22, high-end sales increased 43.4% q-o-q to 1,050 units. For the full year of 2022, high-end sales totalled 4,090 units, up 26.0% y-o-y.

Although China's 20th CPC National Congress delayed new launches in October, a supply surge later in the quarter led mass market new supply to increase 15.1% q-o-q to 4.1 million sqm in 4Q22. For 2022 as a whole, new supply reached 11.5 million sqm, up 41.6% y-o-y. Five high-end projects launched 1,067 units in 4Q22 (up 35.9% q-o-q), with average prices ranging from RMB 125,000 to RMB 145,000 per sqm. Riverside Palace - developed by Forte in Xuhui West Bund - was popular with homebuyers, with its prime location helping it to nearly sell out on launch day.

With caps on primary prices slightly loosened in 4Q22, primary prices edged up 1.4% q-o-q to RMB 129,700 per sqm. Meanwhile, secondary market homebuyers were discouraged by previous price hikes, while abundant high-end primary supply also diluted demand. As a result, high-end secondary prices declined 1.6% q-o-q to RMB 107,000 per sqm. Leasing activity slowed in the fourth quarter due to seasonality as well as a reduction in tenant numbers brought on by the lingering effects of the pandemic. As such, average rents fell by 1.1% q-o-q to RMB 173.2 per sqm per month in 4Q22.

“Given the recent lifting of 'zero-Covid' measures, we expect market activity to be impacted over the next few months. However, with people's lives returning to normal after Shanghai passes its peak of Covid infections and given looser monetary policy nationwide, overall home sales momentum is likely to see a gradual recovery in 2Q and 3Q of 2023.” said Sherril Sheng, Research Director for JLL China Residential Sector. With price caps likely to stay loose, primary prices are expected to see mild growth in the short term. On the other hand, secondary prices are likely to experience further declines in 1H23, and then stabilize in 2H23 as Shanghai returns to normal and market confidence recovers.