shanghai grade-a
TRANSCRIPT
Q2 2021
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nShanghai Grade-A Off ice Market Report
Increasing demand led to an active leasing market
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S h a n g h a i g R a D E -a O F F i C E M a R K E T R E P O R T Q 2 2 0 2 1
O V E R V I E W A N D O U T L O O K
FIGURE 1: Shanghai Grade-A office market indicators[1]
2021 q2Vacancy rate
17.6%2021 q2
Rent
8.30RMB/sqm/day
2021 q2New supply
qoq change:
Outlook (q3 2021) :
0.18%qoq change:
Outlook (q3 2021) :
1.7pps32.8% qoq change:
Outlook (q3 2021) :
S ource: Knight Frank Research[1] Rent refers to average effect ive rent
246,000sqm
S ource: Knight Frank Research
FIGURE 2: Shanghai office development pipeline, 2021-2023
South Jing’an (Nanjing West Road)Pudong (Lujiazui, Zhuyuan, Huamu, Century Avenue,Qiantan, Post-expo)Xuhui (Xujiahui, Xuhui Binjiang, Huaihai Middle Road)Huangpu (People’s Square, Huaihai Middle Road, The Bund)Changning (Zhongshan Park, New Hongqiao, Linkong)Putuo (Changfeng)Hongkou (North Bund, Sichuan North Road)North Jing’an (Daning, Railway Station)Minhang (Hongqiao CBD,Xinzhuang)Yangpu (Wujiaochang, Dalian Road, Yangpu Binjiang)
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
3,000,000
2021 2022 2023
sqm
Four new projects with a total of 246,000-sqm office space were completed in the Shanghai grade-a office market in the second quarter (Q2) of 2021. The total new supply in the first half of 2021 reached over 600,000 sqm.
Shanghai continues to be an investment hot spot for foreign-funded companies. in Q2, a total of 30 regional headquarters of multinational companies and 10 foreign R&D centres were approved by the government and they are mainly from key industries including biomedicine, high-end intelligent manufacturing, and high-end
services. The establishment of these new headquarters shows the full confidence of foreign-funded companies in Shanghai's future development.
The constantly increasing leasing demand pushed the average vacancy rate down by 1.7 percentage points QoQ to 17.6%. Leasing demand from financial services companies and retail brands was strong. The net absorption in Q2 was approximately 563,000 sqm, of which net absorption in Core CBDs continued to increase to 69,423 sqm.
We expect that the grade-a office market in Shanghai will be more active in the second half of 2021. There will be no less than 1 million sqm of grade-a office space to be completed, and new office projects will be mainly in Qiantan and Xuhui Binjiang areas. in the third quarter, as the domestic economy continues to improve, leasing demand will be further released. as both landlords and tenants are becoming active, the market rents are expected to stop falling and start to rebound, while the average vacancy rate will continue to decline.
JC Plaza, a hotel renovation project located on nanjing West Road, one of the Core CBDs, was completed in Q2, bringing 50,000 sqm of office space to the market. Expanded CBDs and Emerging Business Districts also witnessed new completions including the Sino-amercian T.&F. Tower on Sichuan north Road and Lifestyle international Centre in Daning with a total office gFa of 80,000 sqm.
in terms of new leasing transactions in Q2, the majority of the leasing demand still came from the financial service sector such as asset management, PE and securities, and professional service sector such as law firms and education companies. in addition, the demand of the foreign retail brands from apparel, cosmetics and furniture sectors, has also increased. Local enterprises were still the dominant source of leasing demand,
S U P P LY A N D D E M A N D
FIGURE 3: Grade-A office supply, net absorption and vacancy rate
accounting for 70% of the overall demand while the multinational companies accounted for approximately
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S h a n g h a i g R a D E -a O F F i C E M a R K E T R E P O R T Q 2 2 0 2 1
S ource: Knight Frank Research
'000 sqm Supply (left) Net absorption (left) Vacancy rate (right)
0%
5%
10%
15%
20%
25%
30%
0
500
1,000
1,500
2,000
2,500
3,000
2010 2012 2014 2016 2018 2020
in Q2, the average grade-a office rent in Shanghai continued to drop slightly by 0.16% QoQ to RMB8.30 per sqm per day. The average rent of Core CBDs edged up by 0.84% to RMB10.9 per sqm per day. With the recovery in leasing demand, many landlords of grade-a and Premium grade-a office buildings have increased the asking rents, pushing up the average rent in Core CBDs. Leasing demand from financial service companies, retailers and law firms with high rent paying ability continued to increase, boosting the market rents in the related areas. The office rents in the submarkets such as nanjing West Road, the Bund and Qiantan areas all increased to varying degrees in Q2. at present, the market performance in Shanghai varied greatly among different submarkets. The room for negotiation between landlords and tenants in some major industry clusters has narrowed whilst landlords continued to offer more decoration exemptions and rent-free periods for fitting-out in some other submarkets.
R E N T S
FIGURE 4: Grade-A office rental trend
Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q3Q2 Q4Q1 Q2
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
RMB/sqm/day
30%. Multinational companies with more active leasing activities came from biomedical, financial and retail sectors.
S ource: Knight Frank Research
Area Building Tenant Area(sqm) Type
North Bund Raffles City the Bund Huawei 26,000 New Lease
North Bund Raffles City the Bund SPDB Financial Leasing 20,000 New Lease
Hongqiao CBD The Gate Zhongchuangwei quantum 4,500 New Lease
New Hongqiao L ’Avenue Guantao Law Firm 4,000 New LeaseQiantan New Bund Centre Ivolution Capital 3,500 New Lease
Nanjing West Road Wheelock Square Bohe&Hansen 2,140 New Lease
TABLE 1: Major Grade-A office leasing transactions, Q2 2021
S ource: Knight Frank ResearchNote: a l l t ransact ions are subject to conf i rmat ion
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I N V E S T M E N T M A R K E Tin Q2 2021, four en-bloc office transactions were recorded in the office investment market, with a total consideration of over RMB3 billion. The total amount of en-bloc office sales in the first half of 2021 reached approximately RMB10 billion, accounting for nearly 60% of the total figure. Overseas funds and local owner-occupiers were the major buyers in Q2.
On 9 May, noah signed with Sunny group through its several subsidiaries and planned to acquire approximately 72,000-sqm office space in hongqiao Sunny World Centre in hongqiao CBD.
noah will use the office space as its headquarter after the acquisition is completed. Shanghai Quectel Technology acquired approximately 5,431 sqm of office space in Building 5 of Shanghai Business Park Phase 3 (Zone B) in Caohejing from Lingang holdings for RMB250 million.
in addition, there are several en-bloc transactions in the market that are in the process of modifying the sale and purchase agreement. CapitaLand entered into the cooperative agreement with Ping an Life insurance to sell partial stakes in the portfolio of China Raffles
City development including Raffles City Shanghai, Raffles City Beijing, Raffles City ningbo, Raffles City Chengdu, Raffles City Changning and Raffles City hangzhou to Ping an Life insurance. SOhO China announced that goldman Sachs on behalf of Blackstone made the offer by cash to acquire 54.93% equity in SOhO China, with the maximum cash consideration of hKD23.658 billion (approximately USD3.048 billion). after the acquisition, Blackstone will have the rights and interests of the projects in the core areas of Beijing and Shanghai.
ShANGhAI GRADE-A OFFIcE MARKET DAShBOARD(Q2 2021)
Shanghai office inventory, rents and vacancy rates of major business districts
S ource: Knight Frank ResearchNote: uni t for market inventory – 1 ,000 sqm; rents using average effect ive rent at RMB/sqm/day ; VR refers to average vacancy rate.
Hongqiao CBDInventory: 1,366Rent: 5.37VR: 23.1%
Inventory: 409Rent: 7.75VR: 7.2%
Zhongshan Park Railway StationInventory: 570Rent: 7.06VR: 26.0%
Inventory: 1,389Rent: 11.10VR: 8.1%
Nanjing West Road People’s SquareInventory: 887Rent: 8.33VR: 11.3%
The BundInventory: 485Rent: 9.59VR: 11.4%
North BundInventory: 679Rent: 8.07VR: 30.0%
Inventory: 497Rent: 6.13VR: 54.7%
Xuhui BinjiangInventory: 494Rent: 7.87VR: 3.5%
XujiahuiInventory: 1,389Rent: 7.63VR: 14.8%
New Honqiao Little LujiazuiInventory: 2,787Rent: 11.31VR: 6.4%
Inventory: 762Rent: 7.23VR: 16.4%
Qiantan Century AvenueInventory: 943Rent: 8.28VR: 10.9%
Inventory: 975Rent: 9.77VR: 10.1%
Huaihai Middle Road
Core CBDCBDExpanded CBDEmerging business district
22.20million sqm
Total Inventory
Knight Frank Research provides strategic advice, consultancy services and forecasting to a wide range of clients worldwide including developers, investors, funding organisations, corporate institutions and the public sector. All our clients recognise the need for expert independent advice customised to their specific needs. Important Notice: ©Knight Frank 2021: This document and the material contained in it is general information only and is subject to change without notice. All images are for illustration only. No representations or warranties of any nature whatsoever are given, intended or implied. Knight Frank will not be liable for negligence, or for any direct or indirect consequential losses or damages arising from the use of this information. You should satisfy yourself about the completeness or accuracy of any information or materials and seek professional advice in regard to all the information contained herein. This document and the material contained in it is the property of Knight Frank and is given to you on the understanding that such material and the ideas, concepts and proposals expressed in it are the intellectual property of Knight Frank and protected by copyright. It is understood that you may not use this material or any part of it for any reason other than the evaluation of the document unless we have entered into a further agreement for its use. This document is provided to you in confidence on the understanding it is not disclosed to anyone other than to your employees who need to evaluate it.
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