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Shanghai Quarterly Property Market Report 2017 Q3

New grade-a office supply concentrated In pudong in q2 2017

New Grade-A office supply in Q2 reached 263,654 sqm, down 64% quarter on quarter (Q-o-Q) (see Table 1).

In Q2, the average Grade-A office rent remained stable at RMB9.8 per sqm per day (see Table 1).

The overall Grade-A office vacancy rate also remained stable at 4.2% (see Table 1). The amount of vacant office space plunged in Hongqiao CBD in Q2.

The office market was quiet with less leasing activities in some submarkets. Both the average rents and the occupancy rates of Puxi Zhongshan Park, Puxi Daning and Pudong Zhuyuan decreased significantly due to less leasing activities in these areas. In Q2, the average rent in Zhongshan Park, Daning and Zhuyuan decreased 3.9%, 8.8% and 3.3% respectively, compared with the previous quarter.

Due to the huge amount of new supply in the second half of 2017, we expect some landlords to lower asking rents to maintain occupancy levels. Meanwhile, costsensitive tenants are likely to tighten their rental budget. However, increasing demand from financial and consultancy companies is expected to offset the impact of the huge supply.

Office rents are expected to remain stable in Q3. A new wave of lease review is expected in 2018 for leases signed during the supply peak of 2014-2015. As landlords are likely to soften their stance on rents during negotiation, we expect the average office rent to decrease 1% year on year (Y-o-Y) in the coming year.



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