Foreign investment into the Shanghai Free Trade Zone (FTZ) is driving unprecedented demand for prime office space.
Chinese Ministry of Commerce data shows that from January to September last year, the number of newly registered foreign-invested enterprises in the pilot FTZ rose by 52.6% year on year. Savills credits China’s financial reform with attracting foreign companies to establish headquarters in its most populous city.
“Acquisitions by end-users, in particular, have helped absorb much of the new supply, keeping vacancy rates in core areas down,” finds the real estate service provider’s latest market report.
Demand in Pudong prime areas continued to exceed new supply, pushing vacancy rates to new lows, while non-prime areas in Pudong witnessed strong take-up, according to James Macdonald, director of Savills Shanghai.
“In Puxi, where vacancy rates have increased due to new supply, owners of newer projects have begun offering extended fit-out and rent-free periods to attract tenants in preparation for the expected supply influx,” he said.
In another emerging trend, landlords may demand six to nine months’ rental in advance from tenants in certain industries, especially peer-to-peer lenders, instead of the three months required in a typical leasing agreement.
Shanghai’s core office market received four new projects in the first quarter of this year, adding nearly 140,000 square metres of supply, the Savills report shows.
This included two projects in Puxi – Crystal Galleria in the Jing’an district and Star Bund T1 in Hongkou district – and two projects in Pudong: United Overseas Bank Plaza and Poly International Plaza.
The firm expects close to one million square metres of new supply, including the 280,000-square-metre Shanghai Tower, to enter the core market in the rest of 2016.
The new supply also includes Tower 1 of HKRI Taikoo Hui, a Grade A office building being developed by Hong Kong’s Swire Properties and HKR International.
A report by Colliers International points to Qiantan – billed as “the new Bund” – as the new office and retail catchment of Shanghai. Dozens of office developments, totalling around 1.5 million square metres, are planned in Qiantan, with the first wave of supply, more than 240,000 square metres, scheduled to complete in 2017.
“Qiantan is attractive to smaller players of the financial industry, such as the fast-growing digital payment sector,” said Derek Lai, Colliers International’s senior director of office services in east China. •
