Shanghai office yields fall

SHANGHAI: The capital value growth of Shanghai’s Grade A offices continued to outpace rental rate growth in 2Q 2010 as the market sees evidence of further yield compression, according to Colliers International.

In its latest Shanghai Grade A Office Market Report, Colliers said yields on stabilised assets continued to support the long-term yield compression trend that the market has been observing.

“As both foreign and domestic investors continue to have a strong appetite for quality assets in China, it seems unlikely that there will be any sustained periods of yield decompression in the short- to medium-term”, said Colliers.

It said market activity remained buoyant in 2Q2010 as the office market saw a number of significant transactions, citing the example of one premium office building located in Luwan district, which was transacted en bloc for the third time in five years as German Fund SEB sold the property to a Hong Kong-listed company.

“Other market transactions include the strata sale of 7,000 sq m in HSBC Tower by HSBC to Hang Seng Bank,” it said.

Colliers added that as vacancy rates remained steady across the market, rental rates increased slightly to seven yuan (RM3.30) per sq m per day, a 1.9% quarter-on-quarter (q-o-q) increase, saying that the gains in the rental market can be attributed to the performance of the Pudong office sub-segment areas.

“In Q2, Lujiazui experienced an effective rental growth rate of 4.8% q-o-q,” it added.