Shanghai office rents tipped to rise 15% on strong growth

SHANGHAI: China's continued strong economic growth is prompting many companies to expand and upgrade their offices in Shanghai, and the trend is expected to drive rents of top grade A offices higher this year despite new supply.

"Rents will continue to rise on both sides of the river throughout 2011," predicted Anthony Couse, managing director of property management firm Jones Lang LaSalle in Shanghai. "We expect Pudong rents to go up by between 10% and 15% in 2011, and Puxi office rents to rise 15%."

In a recent report on the market, Jones Lang LaSalle noted that the average rental for grade A offices in Shanghai's central business district in the final quarter of last year was 7.50 yuan (RM3.47) per square metre per day, or over 228 yuan per square metre per month. That represented a 20% increase over the same quarterly period in 2009.

Rents for premium grade A offices recorded smaller growth of 17.1% year on year, to a daily rate of 8.50 yuan per square metre, or a monthly rate of around 258.50 yuan per square metre, the study found. Office rents in Puxi showed the largest quarterly growth since the first quarter of 2005, as rents surged 7.1% quarter on quarter in the last three months of 2010, the research showed. Couse said multinational companies, particularly from manufacturing and professional services firms, were resuming expansion on the mainland.

Demand for office space was particularly strong in the newly completed Wheelock Square, the tallest building in Puxi. Developed by Wharf (Holdings), the 2.5 billion yuan project comprises a 61-storey main tower with 107,000 square metres of office space, plus two annex buildings accommodating high-end retail and food and beverage outlets.

One of its largest tenants is US pharmaceutical firm Bristol-Myers Squibb which has taken three floors totalling around 6,400 square metres in the tower.

Dave Siu Wing-koon, Wharf China Estates' general manager of estates management in Shanghai, said some tenants "are relocating from other districts to upgrade, expand or consolidate their offices under one roof".

Wharf has just launched its phase two leasing programme after all office space in the building from the second to the 33rd floor was taken up last year at daily rates ranging from 7 yuan to 11.50 yuan per square metre, or at a monthly rate of between 220 yuan and 350 yuan.

Siu expects the remainder of the office space located from the 36th to 61st floor will be leased at around 12 yuan to 15 yuan per square metre per day, or monthly rates of between 365 yuan and 460 yuan per square metre.

"Shanghai's office market started to recover in the second quarter of last year after the slump due to the financial crisis at the end of 2008," he said. "I think it will continue to grow in the coming six to 12 months, with a double-digit growth in rental prices for the full year."

But real estate services company Colliers International is less optimistic about Shanghai's grade A office market this year. It expects rents to remain stable because of the record amount of new office supply expected to be released onto the market.

Over one million square metres of grade A office space and nearly 500,000 square metres of decentralised grade A office space are forecast to be released this year, which is equivalent to the total amount of new supply released over the last three years, its latest report said.

Under the weight of that new supply, Colliers forecasts that rentals will drop marginally from around 7.1 yuan per square metre per day in the last quarter to an average of 6.90 yuan by the end of the year.

Jones Lang LaSalle, however, believes increases in vacancy rates will be limited because of the strong demand.

The vacancy rate for the overall grade A office market in Shanghai fell 2.9 percentage points year on year to 8.5% in the fourth quarter of last year, it said, although that for the premium grade A office space rose slightly by 1.4 percentage points to 13%. — SCMP
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