As Shanghai moved past the spring outbreak, citywide net absorption picked up to 104,000 sqm. In the CBD, diversified tenant demand helped the market remain stable. “Financial services and professional services companies continued to drive leasing activity,” said Stanley Jiang, Head of Project Leasing for for JLL Shanghai Office Leasing Advisory. “That said, renewals also increased as tenants overall remained conservative.” Decentralized net absorption reached 129,000 sqm. Inquiries continued to be concentrated in popular submarkets such as Qiantan and Xuhui Bund. Firms in new strategic sectors such as life sciences and new energy vehicles supported leasing momentum, and demand from financial services and TMT companies remained resilient.

Three new projects delivered 277,800 sqm in 3Q22. In the CBD, one new project delivered 115,000 sqm to Xujiahui submarket, leading overall CBD vacancy to rise 1.7 ppts q-o-q to 9.1%. The new project is expected to help upgrade Xujiahui's business atmosphere and maintain the submarket's competitive position in the Puxi CBD. Two decentralized projects with a combined GFA of 163,000 sqm reached completion. High pre-commitment rates and active leasing in recent completions led decentralized vacancy to edge down 0.1 ppts q-o-q to 25.0%.

The CBD’s overall rents edged down by 0.7% q-o-q as lingering effects of the spring COVID outbreak led landlords to become more negotiable on rents to achieve better occupancy. Several experienced landlords proactively adjusted leasing strategies in order to maintain competitiveness. Rents in the decentralized market continued to diverge between buildings, with landlords in high vacancy submarkets providing incentives such as longer rent free periods. In this tenant-favorable market, rents fell by 1.3% q-o-q. Landlords' rental expectations also were impacted by recent slow demand and large upcoming supply.

Shanghai’s business park market remained stable, with overall net absorption reaching 65,000 sqm. “Firms in emerging industries such as life sciences and new energy vehicles (NEVs) continued to show active leasing momentum, helping keep leasing demand resilient. Demand in Jinqiao submarket increased thanks to its industrial base of high-end manufacturers and spillover demand from life science companies in Zhangjiang submarket,” said Stephen Yu, Head of Business Park for JLL Shanghai Office Leasing Advisory. In addition, Zhangjiang and Caohejing submarkets continued to receive considerable leasing inquiries. That said, lingering effects of the outbreak made some tenants cautious, leading some to defer leasing decisions and causing landlords to adjust expectations. One project in Zhangjiang reached completion in the quarter, with most of its inquiries coming from life science companies. Steady growth in leasing transactions reduced overall vacancy to 10.4%. Overall rents remained flat at RMB 4.6 per sqm per day.

Net absorption rebounded after the first half’s slowdown, rising to 145,000 sqm on the back of resilient leasing demand. While the quarter's leasing was balanced somewhat by new supply, vacancy still slightly decreased from 9.9% to 9.8%. “Drivers of demand varied this quarter,” said Richard Huang, Co-Head of Logistics & Industrial for JLL China. “ For example, we saw local companies including 3PLs make over 5,000 sqm in commitments in a newly completed project, and in a stabilized asset in Songjiang.” New energy vehicle (NEV) firms also continued seeking space, with a well-known NEV maker leasing a Fengxian asset in full upon completion.

Three projects reached completion this quarter following a relatively quiet 2Q. Vanke delivered its Jinshan Caojing Park (42,000 sqm) with solid pre-leasing. Fengxian and Songjiang submarkets each saw one new completion. New Ease also delivered its Songjiang Xinbang Park (55,000 sqm). Two projects in Qingpu and Jinshan are expected to deliver a total of 408,600 sqm over the remainder of the year. ESR Qingpu Yuren alone will contribute 345,000 sqm, increasing Qingpu's total stock by more than 30% and potentially leading to higher vacancy in the submarket.

Rents grew by 0.7% q-o-q and 3.1% y-o-y this quarter, both on a like-for-like basis. The quarter's growth trend was underpinned by stable demand, particularly in Shanghai's more mature submarkets.

Looser monetary policy and a lower loan prime rate (LPR) allowed home sales to recover this quarter, as demand that built up over the first half's COVID outbreak was released. Combined with the quarter's increased supply, these effects allowed total sales volume to rise 188.4% q-o-q (51.6% y-o-y) to about 3.7 million sqm. In the high-end segment, buying momentum remained solid thanks to stable upgrade demand. That said, only 732 high-end units were transacted, mainly a result of reduced high-end supply over the quarter.

After the spring outbreak, Shanghai's government adjusted supply-side policies by accelerating the pre-sales permitting process to support developers' cash flows and satisfy pent-up demand. As a result, this quarter saw supply surge with about 3.6 million sqm launched, up 235.3% q-o-q and 127.5% y-o-y. Only two high-end projects, Suhe Century located at Suhe Creek and Oriental Magnolia located at Qiantan, supplied 785 units in total to the market this quarter. Both projects achieved high pre-commitment rates and nearly sold out, helped by limited competition in the high-end market this quarter.

Primary prices rose 0.4% q-o-q to RMB 126,700 sqm amid looser supply-side measures. In the secondary market, properties with larger unit layouts and high-end residential compounds were popular with upgraders. As a result, high-end secondary prices surged 1.3% q-o-q to RMB 108,700 per sqm. The high-end leasing market remained resilient thanks to demand from families looking for spaces near schools before the start of a new semester, as well as upgraders seeking spacious units after the recent COVID outbreak. As a result, average rents edged up 0.6% q-o-q this quarter.

Shanghai's local housing policy is likely to remain tight through end-2022. “That said, we expect 2022's annual high-end sales volumes to be supported by upgrade demand,” said Sherril Sheng, Research Director for JLL China Residential Sector. Primary prices are expected to edge up in 4Q22 amid slight easing in supply-side policies. In the secondary market, we expect sales activity to slow in the coming quarter given most pent-up upgrade demand was released in 3Q22. We forecast secondary price growth for 2022 to moderate from its 7.2% pace of increase in 2021.