Shanghai’s net absorption saw a notable increase in the second quarter recording 115,700 sqm driven by leasing activities influenced by cost considerations. Stanley Jiang, Senior Director for JLL Shanghai Office Leasing Advisory stated, “In the CBD, tenants leveraged market opportunities to upgrade office quality by relocating to newer projects, while Cost-saving decentralisation trend continues.” In the decentralised submarkets, the influx of supply exerted downward rental pressure, prompting larger occupiers to seize the opportunities. Also, Cost-saving decentralisation trend continues with some companies originally located in suburban areas are capitalising on the narrowing rental disparity to relocate to decentralised grade A projects.

Four projects deliver 261,000 sqm in the second quarter. In the CBD, a new project with 40,400 sqm of space entered the Xintiandi submarket, generating significant pre-leasing and inquiries. However, a combination of decentralisation and small-scale terminations led to a 0.3ppts q-o-q rise in vacancy to 15.6%. In the decentralised submarkets, three projects reached completion totalling 220,700 sqm, intensifying market competition. The new completion offset the relatively active leasing observed in the decentralised submarkets and pushed up vacancy by 0.5 ppts q-o-q to 30.1%.

Rents further decline and are expected to remain in the downward cycle as the market competes for cost-driven relocations. The current market environment stimulates upgrade demand or flight to higher-quality decentralised projects, alongside the possibility of favourable renewal deals for some tenants. Some large-sized anchor tenants with expiring leases may also consider leveraging current market conditions to adjust their leasing strategies. Rent adjustments within the current market are expected to drive net absorption to gently recover.

In the second quarter, the net absorption of the Shanghai business park market recorded 178,000 sqm. The recent completion of high-quality projects and increased negotiation margin attracted some tenants to relocate and upgrade. Furthermore, relocation from some large-size tenants emerged after a lengthy and thorough decision-making process. “We are witnessing more tenants seizing opportunities to reassess their leasing strategies. Key drivers of demand include companies in the integrated circuits sector and those along the NEV industry chain. Additionally, demand from public incubators (a type of government platform) and research institutions increased as business parks have been essential vessels of industrial development.” said Stephen Yu, Head of Business Park Services for JLL Shanghai Office Leasing Advisory. A total GFA of 237,000 sqm of new completions were recorded this quarter. The overall vacancy rate of the Shanghai business park market slightly increased by 0.1 ppts q-o-q, reaching 19.9%. Rental growth remained under pressure due to slow market recovery and a large supply pipeline. Overall rents fell by 2.0% q-o-q to RMB 4.3 per sqm per day.

Shanghai further loosened its home purchase restrictions and housing credit policies in May in its ongoing efforts to boost homebuyers' confidence and stabilize the housing market. Notable measures include easing homebuying curbs for non-local residents and reducing minimum mortgage rates and down payment ratios for first-home and second-home buyers. As new supply remained limited during this quarter, Shanghai’s primary home sales volume recorded 1.89 million sqm, reflecting a 30.2% y-o-y decline. In the high-end segment, however, pent-up upgrading demand coupled with a surge in new supply allowed high-end sales to total 1,786 units, up 71.6% q-o-q.

New home supply remained tight in 2Q24, as the market only saw a total supply of 2.27 million sqm reaching the market, down 18.3% y-o-y. Shanghai's high-end residential market saw a surge in new supply this quarter. Nine new high-end residential projects comprising 2,019 units were launched to the market, representing a 66.3% q-o-q increase and a 45.4% y-o-y increase. The average prices for the newly launched high-end projects ranged between RMB 133,000 per sqm and RMB 178,000 per sqm.

Amid the loosening of price caps, high-end primary prices rose a further 1.2% q-o-q to an average of RMB 143,000 per sqm. Supportive policies facilitated increased sales activities on the secondary market, resulting in narrower price declines for secondary projects. However, average secondary prices still decreased by 2.7% q-o-q to RMB 149,000 per sqm.

“We expect the policy stance to remain relaxed, with the possibility of additional supportive policies being implemented in the next 12 months. The recent supportive policies will help restore homebuyers' sentiment and facilitate steadier recovery in home sales momentum in both primary and secondary markets in 2H24,” said Sherril Sheng, Research Director for JLL China Residential Sector. Furthermore, high-end primary prices are expected to rise further amid looser price caps. As Shanghai's secondary home sales momentum continues to recover, we expect a deceleration in the decline of secondary prices.