News release

Office rents under pressure; the investment market provides a window of opportunity

According to JLL Shanghai 2019 Second Quarter Property Review

July 10, 2019

Shanghai, July 10, 2019 – Amid a subdued Grade A office leasing market, landlords in decentralised clusters, including Qiantan, performed well in 2Q19. "Competition amongst landlords in attracting tenants has resulted in an occupier-friendly leasing environment characterised by lower rental expectations, particularly on the Pudong side," said Eddie Ng, Managing Director for JLL Shanghai and East China. In the retail market, prime area vacancy declined due to a lack of new supply and continued leasing progress in existing projects, while decentralised vacancy remained flat. In the logistics market, despite stable demand from 3PLs, vacancy slightly increased. Residential sales volume stabilised after a short-lived recovery.

Grade A Office

Overall leasing demand remains subdued. In the Pudong CBD, a few cost-sensitive companies moved to emerging decentralised clusters such as Qiantan, and some large tenants moved to self-use projects. In Puxi CBD, retail, media, and professional services led leasing demand. TMT and manufacturing & trading companies continued to lead demand in the decentralised market, with net absorption reaching 79,000 sqm in 2Q19. “Qiantan saw strong leasing momentum,” said Anny Zhang, Head of Markets for JLL China, “especially for large occupiers with cost-saving or consolidation requirements relocating from the traditional CBD area.”

Two projects completed in decentralised market. After two years of large supply, Pudong CBD saw a vacancy rise to 13.1%, around 11.3 pps above the lowest level (2Q15) in recent years. Puxi CBD vacancy dropped by 1.0 pps q-o-q to 9.1%, thanks to take-up in recent completions. Crystal Plaza blocks 1, 2 and 6 in Qiantan and Life Hub @ Upbund in Hongkou were completed. These two projects added 98,000 sqm to the decentralised market. Stable demand allowed decentralised vacancy to remain flat at 23.6%.

Pudong CBD rents decline while rents in Puxi CBD remain flat. Pudong CBD rents decreased by 3.6% q-o-q to RMB 10.7 per sqm per day, as recent completions lowered rental expectations and several existing projects offered more incentives amid intensified competition. As new projects' landlords compete to secure anchor tenants, decentralised rents dropped to RMB 6.5 per sqm per day with a q-o-q decline of 2.1%, particularly on the Pudong side.

Strata-titled Office

Sales prices slightly decreased. Sales price decreased by 0.3% q-o-q to RMB 43,516 per sqm in 2Q19, and sales volume was constrained, as no new suppy entered the market. Demand primarily came from domestic companies, purchasing strata-titled office space for self-use. Over the next two quarters, a number of high-quality projects, mainly located in the West Shanghai area, are scheduled to enter the market. Sales volume is expected to increase, especially in the Hongqiao Transportation Hub and areas along the Huangpu River in the second half of the year. Demand will continue to be driven by domestic companies seeking strata-titled office space for self-use.

Business Parks

Rents remain flat with stable demand. With no new project completions in 2Q19, stable leasing demand brought vacancy down by 1.5 ppts q-o-q to 12.2%. TMT companies remained active in areas such as Caohejing, and pharmaceutical companies continued to expand their presence in Zhangjiang. Examples include Quectel leasing 13,000 sqm in SBP Phase 3, and JLABS, a subsidiary of Johnson & Johnson, leasing 4,500 sqm as an incubator for pharmaceutical start-ups. Overall rent remained flat with a 0.1% q-o-q increase to RMB 4.5 per sqm per day under stable demand.


Brands pursue growth in malls where they already have a presence. Dine-in restaurant chains emphasised expansion in decentralised community malls, while independent restaurants prioritised brand image and focused on central locations. “Landlords were positive toward makeup brands due to their strong profitability. Men's grooming brands selling skin care products and apparel pursued further expansion opportunities,” said Ellen Wei, Head of Retail for JLL China. Some experienced operators launched self-owned multi-brand stores to differentiate their malls' tenant mixes. Many brands focused on expanding or relocating in malls where they had existing stores rather than open stores in new properties, as retailers grew cautious with rollouts and landlords remained firm on rents.

Project delays restrain supply. Two decentralised projects delivered a total GFA of 66,000 sqm. Alibaba Shanghai Center opened in the north core of Hongqiao Transportation Hub to serve nearby business professionals. Life Hub @ Upbund debuted in Hongkou, catering to nearby middle-class families. Vacancy in the prime market decreased from 9.4% to 9.1% due to a lack of supply pressure and further leasing progress in existing projects. Decentralised vacancy remained flat at 9.5% as tenant adjustments and the below-70% opening rates of new projects offset absorption elsewhere.

Citywide rental growth further moderates. Prime open-market ground floor base rents increased by 0.9% y-o-y to RMB 51.7 per sqm per day. Decentralised rents increased by 1.9% y-o-y to RMB 20.6.


Overall demand moderates, while 3PLs remain active. 3PLs continued to drive most demand and leased large spaces in Songjiang and Qingpu. E-commerce and traditional retail firms remained quiet. Moderate demand and lease expiries led to increases in vacant space in Baoshan and Fengxian. Take-up remained strong in other West and East Shanghai submarkets. Vacated space in West Shanghai tended to be filled quickly, despite the recent enforcement of tax policy.

No new completions in 2Q19. Supply took a breather in this quarter. “Two projects scheduled to open in 3Q19 experienced smooth pre-leasing,” said Stuart Ross, Head of Industrial for JLL China, “with one in Jiading already fully leased.” Due to softening demand and expiration of leases in certain projects in Jinshan and Baoshan, city-wide vacancy slightly edged up 0.6 pps to 6.8% in 2Q19. Vacant space is distributed across several submarkets, including Qingpu, Fengxian, Jinshan and Lingang.

Rents continue to rise as landlords remain confident. Despite the slight uptick in vacancy, owners of leading properties remained confident about market fundamentals and continued to raise rents, especially in popular districts such as Qingpu and Jiading. Rents increased by 1.8% q-o-q to RMB 1.45 per sqm per day in 2Q19. No en-bloc transactions were closed in 2Q. However, insurance firms and other international investors continued looking for opportunities in logistics assets in Shanghai and nearby key hubs.


Sales stabilised after a short-lived recovery. Shanghai's housing policies remained tight throughout the quarter. After seeing a moderate recovery in March and April, the mass market lost some momentum, with sales volume falling 5% m-o-m in May and stabilising in June. Under tight policy, sales volume totaled just 2.16 million sqm in 2Q19, though up by 47% y-o-y compared to a weak 2Q18. In the high-end segment, tight housing policies and limited new launches both constrained sales. As a result, only 492 units were sold in 2Q19, down by 23% q-o-q. By contrast, leasing was slightly more active this quarter due to seasonality.

New launches slightly increase while sales progress slows. This quarter saw 2.13 million sqm entering the mass market, up by 27% q-o-q or 54% y-o-y. However, most of the newly launched projects experienced significantly slower sales progress compared to 2018 as purchaser sentiment softened. In the high-end segment, supply remained limited in 2Q19, with only one project, Joffre Classic Phase II, launching 25 units. As of end-2Q19, 7 units among the new launches had been sold.

Primary prices remain flat while secondary price decline decelerates. Under price caps, high-end primary prices remained largely flat at RMB 116,556 per sqm in 2Q19. High-end secondary prices dipped only 0.1% q-o-q this quarter, decelerating from last quarter's 1.0% drop, as limited primary supply restored individual sellers' confidence to some extent, preventing a steeper decline in secondary prices. With leasing activities picking up slightly, average rents increased by 0.5% q-o-q in 2Q19. In the land sales market, eight plots designated for commodity housing were sold, mostly at reserved prices, indicating caution among developers acquiring land. In addition, four plots for rental housing-use were sold to SOEs during the quarter.

Tight policies to remain in 2H19. We expect polices remain tight in Shanghai in 2H19. Without more supportive policies, we expect sales volume to remain subdued in 2H19 for both mass market and high-end segments. Primary prices are likely to remain stable under price caps, while the fall in secondary prices is expected to decelerate. “That being said, we still see ample room for the central government to increase monetary and fiscal support to shore up the market. If the economy has a clearer direction in 2H19, it will help stabilise market confidence and home sales volume in the second half of the year,” said Stephenie Zhou, Head of Project Sales for JLL Shanghai.

Capital Markets

The Shanghai investment market maintains a strong performance throughout the first half of the year. The first half of 2019 saw an active investment market in Shanghai, with a total transaction volume of RMB 77.5 billion, of which RMB 48.7 billion occured in 1Q19. 2Q19’s total transaction volume of RMB 28.8 billion, while substantially lower than the previous quarter, remains a 70.7% y-o-y increase and accounted for 45% of China’s overall transaction volume. “In first quarter and the early part of the second quarter of this year, the investment market continued its bull run from last year,” said Jim Yip, Head of Capital Markets, JLL China and East China. “However, towards the end of the second quarter, we began to see a slowdown in the market amidst reports of trade conflict uncertainties and a softening office leasing market. Investors are largely adopting a wait-and-see attitude.”

Office sector dominates Shanghai transactions. In the first half of 2019, Office was the major sector of capital investment in Shanghai, with a total investment volume of RMB 42.0 billion, 54% of the total. The Mixed-use sector came in second place, with a transaction volume of RMB 28.2 billion, 36% of the total. Retail followed, accounting for 3% of Shanghai’s 1H19 transaction volume.

Full-year transaction volume expected to soar. According to Jim Yip, Head of Capital Markets, JLL China & East China: “Full-year transaction volume is still likely to reach a record high, even though we expect comparatively-lower transaction volume in the second half of this year. At the same time, while the investors are becoming increasingly cautious in face of softening leasing market in the short term, the likelihood of further decompress of cap rate in the market offers a window of opportunity to pull investors back."

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of over 91,000 as of March 31, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit