Shanghai, April 9, 2025 – Cost-driven leasing demand continued to characterise Shanghai’s office market in 1Q25. According to Neo Huang, Head of Office Leasing Advisory for Shanghai and Head of Retail for East China, JLL, “Landlords continue to take rental concessions and offer attractive incentives in exchange for occupancy amid large supply influx in Shanghai’s office market.”

In the retail market, demand from sectors that emphasize health, entertainment, and value for money remained solid. Shanghai’s investment activity sees a rebound with 24 en-bloc transactions completed in 1Q25. Shanghai’s hotel market performance remains stable with relaxing visa policies continue to drive inbound tourism. High-end residential properties continue to attract homebuyers seeking to upgrade, while decline in secondary prices shows signs of moderation amid continued recovery in sales momentum.

Grade A Office

In 1Q25, rental decline and increased incentive offerings continued to trigger office relocation and upgrade demand. Net absorption recorded 91,200 sqm this quarter. “Cost-driven demand continued to be the primary driving force of the Shanghai office market.” said Stanley Jiang, Senior Director of Office Leasing Advisory for JLL Shanghai. CBD net absorption recorded 46,200 sqm, mainly from domestic financial and professional services companies leveraging current market opportunities. Net absorption in the decentralised submarkets recorded 45,000 sqm. Rental decline incentivised a diverse tenant base to optimise their leasing strategies. Some tenants from Grade B and suburban areas upgraded to Grade A projects amid diminishing rental disparity.

Three new projects totalling 180,000 sqm entered the market in the first quarter. Two projects delivered 86,000 sqm to the CBD market, pushing up the CBD vacancy rate to 16.7%, an increase of 0.3 ppts q-o-q. One project of 94,000 sqm reached completion in the decentralised market. The vacancy rate increased by 0.2 ppts q-o-q to 29.2% amid intensified competition.

Overall rents further trended down as the market remained tenant favourable. In the CBD market, rents decreased by 2.2% q-o-q. To retain existing key tenants or attract new ones, landlords remained flexible in negotiations on renewal and new lease terms. In the decentralised market, rents decreased by 2.6% q-o-q. To attract tenants, landlords continued to offer substantial rental incentives, particularly in submarkets or projects with high vacancy rates.

In the first quarter of 2025, Shanghai’s investment market delivered resilient performance, recording 24 en-bloc transactions with a total transaction volume of RMB 11.46 billion, marking a 20% quarter-on-quarter growth that underscores recovering momentum. Two key trends are prevailing within the market. First, small-scale project transactions remained the mainstream, with the average transaction size continuing to shrink. Transactions below RMB 500 million surged to a historic high of 74%. Second, high-net-worth individuals (HNWIs) and corporate buyers led the investment market, representing 67% of total transactions by transaction volume. Their agile investment strategies have played a positive role in revitalizing existing assets, enhancing market liquidity, and spurring market activity. Transactions for investment purpose continued to rise this quarter, accounting for 86% of total transactions by transaction volume.

In the first quarter of 2025, rental housing emerged as the most sought-after asset class, accounting for 34% of total transaction volume, surpassing office assets for the first time. Insurance institutions played a pivotal role in driving market activity as their interest in large-sized rental housing projects continued to rise. Office ranked second in terms of transaction volume (29%) this quarter, followed by Retail (27%), Hotel (5%), and Business Park (5%).

Ling Sun, Head of JLL Capital Markets East China stated, “The market is undergoing a significant transformation, compelling owners to act decisively to capitalize on emerging opportunities. Many successful transactions this quarter were driven by owners’ agility in adapting strategies to rapidly evolving market conditions. Looking ahead, we expect continued diversification and increased specialization across the investment landscape.”

Relaxing visa policies has been a key driver for inbound tourism in China. Shanghai's overall hotel market performance remains stable as both domestic and international tourism markets continue to gain traction. From January to February this year, Shanghai welcomed 0.95 million international visitors, marking an increase of 34.2% compared to the same period last year. Meanwhile, as of February, the city’s five-star-rated hotel occupancy rate recorded a year-on-year increase of 1.2%. Despite slight declines of 2.3% and 1.0% in average room rates (ADR) and revenue per available room (RevPAR), respectively, the overall market performance remains stable.

In the first quarter of 2025, Shanghai witnessed the addition of 595 new rooms. Around 3,500 new rooms are scheduled to open in the remainder of the year. Some notable ones include Waldorf Astoria Qiantan (203 keys), Thompson Expo (255 keys), and Shangri-La and Traders hotels near Hongqiao Airport (611 keys).

“Shanghai’s hotel market is poised to enter a new phase of comprehensive recovery. With the introduction of a slew of favorable policies, the surge in overseas tourism to China is expected to continue heating up, thereby injecting sustained vitality into Shanghai's hotel market,” said Tao Zhou, Managing Director, Head of JLL Hotels & Hospitality Group Greater China