shanghai office - knight frank...q1 2020 shanghai office knightfrank.com.cn market report during the...
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Q1 2020
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nShanghai Off iceMarket Report
During the COVID-19 pandemic, leasing and relocation activities dropped significantly but more renewals occurred
In Q1, there was no new projects launched in the Shanghai office market. After our annual research basket adjustment, the inventory of Grade-A office space in Shanghai totalled over 19 million sqm. The inventory of Grade-A office space in Core CBDs (5.04 million sqm) and the emerging business districts (5.33 million sqm) accounted for approximately 54% of the total figure. In 2020 nearly 500,000-sqm new office space is expected to be launched in Xuhui Binjiang.
In Q1, the average vacancy rate in Shanghai Grade-A office market increased 0.6 percentage point QoQ to 14%. Both weak market demand and the decrease of leasing activities were the important reasons for the slight increase in vacancy rates. It is worth noting that the global spread of COVID-19 has led to a shrinking business volume and revenue of related companies in the trade, retail and manufacturing sectors. Companies will have to reduce their office space due to cost savings, and the average vacancy rate will increase significantly in the coming quarters.
S U P P LY A N D D E M A N D
S ource: Knight Frank Research
FIGURE 3: Grade-A office supply, net absorption and vacancy rate
FIGURE 1: Shanghai Grade-A office market indicators[1]
S ource: Knight Frank Research
FIGURE 4: Grade-A office rental trend
FIGURE 2: Shanghai office development pipeline, 2019-2023
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
sqm
2019 2020 2021 2022 2023
South Jing’an PudongXuhuiHuangpuChangningPutuoHongkouNorth Jing’an MinhangYangpu
S ource: Knight Frank Research
Given the weakening economy and the impact of COVID-19, the average rent conintued to decline in Q1. The average rent of Grade-A office market decreased by 2.2% QoQ to RMB9.0 per sqm per day.
Rents in emerging and secondary business districts dropped significantly with a QoQ decrease of 5.6%.
The rent in the Core CBDs dropped slightly to RMB11.1 per sqm per day. Many tenants chose to renew their leases upon expiry and landlords agreed on an unchanged or a downward rent, avoiding a sharp drop in rents in the Core CBDs. The average rents of Nanjing West Road and Huaihai Middle Road remained at RMB10.9 and RMB9.9 per sqm per day respectively. The average rent of Little Lujiazui decreased slightly by 0.8% QoQ to RMB11.9 per sqm per day.
R E N T S
2011 2012 2014 2015 2017 2019 20202018201620132010
0
6
8
10
12
4
2
Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q1Q2 Q3Q4
RMB/sqm/day
'000 sqm
More than 80% of the state-owned landlords provided two months rent relief from Feburary to March in 2020 to small and medium-sized companies, relieving their operating pressure due to the outbreak of COVID-19.
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S H A N G H A I O F F I C E M A R K E T R E P O R T Q 1 2 0 2 0S H A N G H A I O F F I C E M A R K E T R E P O R T Q 1 2 0 2 0
Owing to the COVID-19 pandemic, there was no new project completed or delivered in the first quarter (Q1). It is expected that the peak of supply will come in the next twelve months, with no less than 2.2 million
O V E R V I E W A N D O U T L O O K
District Building Tenant Area(sqm) Type
Railway Station 1FS Atlas 4,800 New LeaseXujiahui Ascendas Plaza International Paper 1,033 New Lease
Nanjing West Road Plaza 66 Tower 2 Jixing Pharma 700 New LeaseNorth Bund North Bund Plaza Galaxy Derivatives 1,503 New Lease
Qiantan New Bund Centre Veolia Water Technology 4,500 New LeaseLittle Lujiazui Ruiming Tower Jiahe Fund 2,400 New Lease
TABLE 1: Major Grade-A office leasing transactions, Q1 2020
new supply launched onto the market due to the current delays in office project completions. Domestic import and export trade and related industries have been seriously affected by the global COVID-19
2020 q1Vacancy rate
14%
2020 q1Rent
9.0RMB/sqm/day
-sqm
2020 q1 New supply
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Q1
3,000
2,500
18%
16%
14%
12%
10%
6%
8%
4%
0%
2%
2,000
1,500
1,000
500
0
Supply (left) Net absorption (left) Vacancy Rate (right)
pandemic, leading to softened demand in the short term. The average vacancy rate will continue to rise, while market rents will maintain a downward trend in the second quarter of 2020.
-qoq change:
Outlook (q2 2020) :
2.2%qoq change:
Outlook (q2 2020) :
0.6ppsqoq change:
Outlook (q2 2020) :
S ource: Knight Frank Research
[1] Rent refers to average effect ive rent
S ource: Knight Frank ResearchNote: a l l t ransact ions are subject to conf i rmat ion
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.
4
S H A N G H A I O F F I C E M A R K E T R E P O R T Q 1 2 0 2 0
In Q1 2020, the Shanghai property investment market recorded four office en-bloc sales for a total investment amount of RMB3.5 billion. The major buyers are investment funds, insurance funds and developers.
In January, HNA Group sold Shanghai HNA Tower Project to China Cinda Asset
I N V E S T M E N T M A R K E TManagement. Located in Pudong New Area, Shanghai HNA Tower has a total gross floor area of 87,395 sqm. HNA Group holds office floors from level 1 to 5 and level 12 to 20 as well as the whole retail portion of 5,895 sqm.
In Feburuary, Keppel Land China Limited has entered into an equity transfer agreement to acquire 100% equity in
several wholly-owned subsidiaries of The9 Limited in China which collectively owned Zhangjiang Micro-Electronic Port Block Three for RMB493 million. Located in the core area of Zhangjiang Hi-Tech Park, the four-storey R&D office building has a total gross floor area of approximately 14,518 sqm.
S h A N G h A I O F F I c E M A R K E T D A S h B O A R D( 2 0 2 0 Q 1 )
The BundPeople’s SquareRailway StationHongqiao CBDInventory: 1,348 Rent: 7.4 VR: 22.9%
Zhongshan Park North BundInventory: 409Rent: 7.2VR: 2.9%
Nanjing West RoadInventory: 1,308Rent: 10.9VR: 6.1%
Inventory: 500Rent: 6.5VR: 30.9%
Inventory: 887Rent: 8.5VR: 5.0%
Inventory: 485Rent: 8.9VR: 16.4%
Inventory: 631Rent: 8.0VR: 37.7%
Little LujiazuiQiantanXuhui BinjiangNew Honqiao Xujiahui Century AvenueInventory: 1,211Rent: 7.4 VR: 22.2%
Inventory: 494Rent: 7.6 VR: 3.4%
Inventory: 223Rent: 6.6 VR: 1.4%
Inventory: 600Rent: 6.4VR: 35.1%
Huaihai Middle RoadInventory: 953Rent: 9.9VR: 4.3%
Inventory: 2,787Rent: 11.9VR: 7.3%
Inventory: 943Rent: 8.6VR: 14.7%
Core CBDCBDSecondary business districtEmerging business district
19.09million sqm
Total Inventory
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