ECONOMIC OVERVIEW

MARKETBEAT
with
OFFICE SNAPSHOT
SHANGHAI, CHINA
Q3 2014
A Cushman & Wakefield Research Publication
Shanghai's gross domestic product (GDP)
grew 7.1% year-on-year in the first half of
2014 to total 1,095.3 billion RMB, according
to the latest figures released by the Shanghai
Municipal Statistics Bureau. Shanghai’s GDP
growth in the second quarter was primarily led by the services sector,
which saw a year-on-year expansion of 7.8%. Meanwhile, total foreign
direct investment (FDI) in Shanghai reached US$14.6 billion during the
first half of the year, up 27.8% year-on-year. Tertiary industry accounted
for 90.5% of the total investment, a 2.4 percentage point increase
compared to the same period last year.
OFFICE MARKET OVERVIEW
The average Grade A vacancy rate in the Shanghai central
business district (CBD) edged up 0.9 percentage points over the
previous quarter to 6.8% in the third quarter. The increase was
primarily due to the delivery of two new construction completions –
Oriental Financial Center in Lujiazui and Henderson 688 in Jing’an. Bank
of Communications originally bought Oriental Financial Center for selfuse, but recently decided to lease out approximately half of the office
space in the building, resulting in an unexpected 40,000 sq.m. of additional
supply being launched to the Lujiazui leasing market. In Jing’an, average
Grade A vacancy increased by 3.6 percentage points over last quarter to
reach 11.0%. This was driven mainly by the delivery of Henderson 688
which brought nearly 60,000 sq.m. of new supply to the leasing market.
Plaza 66 II also saw 5,500 sq.m. being vacated this quarter by Nike
relocating operations to The Springs in Yangpu District. In contrast,
Grade A vacancy in Hongqiao CBD dropped by a massive 10.5 percentage
points quarter-on-quarter to 10.5%. This rapid absorption was driven
primarily by strong leasing demand in Shanghai Arch. Grade A office
buildings in Hongqiao CBD are all nearing full occupancy except Shanghai
Arch where vacancy is around 30%. Huangpu, Zhuyuan, and Xuhui CBD’s
vacancy s all remained relatively stable.
The average CBD Grade A effective rent remained broadly
stable at 9.86 RMB/sq.m./day, recording a slight drop of 0.8%
over last quarter. Two of the six CBD submarkets – Huangpu and
Jing’an – saw notable downward rental adjustments in the average Grade
A rental this quarter, down by 3.3% and 2.5%, respectively. Nevertheless
rents continued to rise in Lujiazui and Hongqiao, up by 1.6% and 2.8%
quarter-on-quarter. In Zhuyuan and Xuhui CBD, the average Grade A
rental was relatively stable this quarter.
OUTLOOK
STATS ON THE GO
3Q14
Q-O-Q CHANGE
Y-O-Y CHANGE
Grade A Vacancy
6.8%
+0.9 pp
+1.2 pp
Grade A Rents*
300
-0.8%
-4.5%
For more information, contact:
James Shepherd
Executive Director,
Head of Research, Greater China
86 21 23200921
james.shepherd@ap.cushwake.com
12 MONTH
OUTLOOK
*Rents refers to Effective Rent based on gross floor area (RMB/sq.m./mo.)
ECONOMIC INDICATORS
CHINA
2011
2012
2013
2014
GDP Growth
9.2%
7.8%
7.7%
7.4% (Jan-Jun)
CPI Growth
5.4%
2.6%
2.6%
2.3% (Jan-Jul)
Unemployment
4.1%
4.1%
4.0%
N.A.
SHANGHAI
2011
2012
2013
2014
GDP Growth
8.2%
7.5%
7.7%
7.1% (Jan-Jun)
CPI Growth
5.2%
2.8%
2.3%
2.7% (Jan-Jul)
FDI Growth
13.3%
20.5%
10.5%
9.3% (Jan-Jul)
Source: National Bureau of Statistics, Shanghai Municipal Statistics Bureau
GRADE A* OVERALL RENTAL** VS. VACANCY RATES
350
10.0%
300
8.0%
6.0%
250
4.0%
200
2.0%
150
0.0%
4Q13
2.1 million sq.m. of new high-quality office accommodation is
now under construction in the Shanghai CBD. New supply is
expect to peak between 2015 and 2016, with large developments such as
Swire’s Dazhongli project, Shanghai Tower, Bund Financial Center, Raffles
Cushman & Wakefield China, Inc.
26F The Headquarters Building
No.168 Xizang Zhong Lu,
Shanghai 200001, China
(+86) 021 2320 0808
www.cushmanwakefield.com
City Changning, The Metropolis, and Century Link all expected to come
to the leasing market. This significant amount of new supply is anticipated
to lead to considerable market movement as occupiers seeking to
upgrade their accommodation while factoring in future expansion take
advantage of reasonably priced space. New supply will place downward
pressure on rental rates over the next two years, but at present a major
rental reduction in core areas seems unlikely. Good projects of premium
quality with good metro connectivity are expected to experience high
pre-commitment rates and above-market-average rental potential, while
poorer quality projects may suffer increasing vacancy and softer rentals as
a result of the increased competition. Moreover, during the next three
years we anticipate some developers will likely delay construction to
avoid entering the market during the peak supply period or look to the
sales market, courting owner occupiers or even in some cases stratatitled buyers. Such activity would soften the impact of new supply across
Shanghai.
RMB/sq.m/mth
ECONOMIC OVERVIEW
1Q14
Grade A Effective Rent
2Q14
3Q14
Vacancy
*Grade A refers to Grade A properties including Prime-quality buildings
**Rental refers to Effective Rent based on gross floor area (RMB/sq.m./mo.)
This report has been produced by Cushman & Wakefield China for use by those with an interest in commercial property solely for information
purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information
obtained from public sources which Cushman & Wakefield China believe to be reliable, but we have not verified such information and cannot
guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of
any of the information contained herein and Cushman & Wakefield China shall not be liable to any reader of this report or any third party in any
way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in
whole or in part. Should you not wish to receive information from Cushman & Wakefield China or any related company, please email
china@ap.cushwake.com with your details in the body of your email as they appear on this communication and head it “Unsubscribe”. ©2014
Cushman & Wakefield China All rights reserved.
SHANGHAI MARKET STATISTICS**
SUBMARKET
Grade A
(including prime)
INVENTORY
sq.m.
OVERALL
VACANCY RATE
UNDER CONSTRUCTION
sq.m.
YTD
CONSTRUCTION
COMPLETIONS
sq.m.
ACHIEVABLE
EFFECTIVE RENT*
RMB/sq.m./
mo.
2Q14
ACHIEVABLE
EFFECTIVE RENT*
RMB/sq.m./
mo.
3Q14
US$***
SF/YR
EURO***
SF/YR
3Q14
3Q14
1,478,784
3.4%
482,700
40,000
331
336
61
47
Huangpu
619,553
10.7%
379,342
94,894
293
292
53
41
Jing’an
767,850
11.0%
353,300
59,774
315
307
56
43
Xuhui CBD
384,569
3.1%
390,000
0
294
284
52
40
Hongqiao CBD
336,452
10.5%
175,661
0
252
259
48
36
Zhuyuan
424,213
5.5%
316,611
69,792
225
223
40
31
Lujiazui
GRADE A OVERALL
4,011,421
6.8%
2,097,614
264,460
302
300
54
42
PRIME OVERALL
1,077,797
3.2%
502,342
50,342
365
356
65
50
*Rental rate refers to Effective Rent and is calculated based on the gross floor area. Assuming a multinational tenant, who is occupying a mid-sized floor for a typical three-year lease
term (rent-free period has already been factored in).
**The office inventory described as “Prime” and “Grade A” in this report only includes the 6 key submarkets listed in above table.
***Exchange Rate: 1 USD = 6.13928 CNY = 0.774534 EUR
MARKET HIGHLIGHTS
SIGNIFICANT 3Q14 LEASE TRANSACTIONS
BUILDING
MARKET
TENANT
bUILDING CLASS
SQUARE METERS
Plaza 66 II
Jing’an
Crédit Agricole
Prime
2,156
Plaza 66 II
Jing’an
Tai Ran
Prime
2,155
Shanghai Arch
Hongqiao CBD
Isuzu
A
2,000
Plaza 66 I*
Jing’an
LVMH
Prime
1,871
5 Corporate Avenue*
Huangpu
Aegis Media China
Prime
1,430
Plaza 66 II
Jing’an
Getop Investment
Prime
1,149
Jin Mao Tower*
Lujiazui
Guo Tai Fund
A
1,000
Plaza 66 I*
Jing’an
Fangda Partners
Prime
547
IFC II
Lujiazui
Harbin Bank
Prime
500
BUILDING CLASS
SIGNIFICANT 3Q14 YTD CONSTRUCTION COMPLETIONS
BUILDING
MARKET
TENANT
SQUARE METERS
5 Corporate Avenue
Huangpu
Aegis Media China, Lanxess
Chemical
Prime
50,342
100 Bund Square
Huangpu
Joinway LLP, SWS Mu Fund Mgt.
A
44,552
Lujiazui Century Financial Plaza Tower 2
Zhuyuan
Yeo-Leung & Peh LLP, Teleflex
A
69,792
Henderson 688
Jing’an
New Balance, Control Risk
A
59,774
Oriental Financial Center
Lujiazui
N.A.
A
40,000
SIGNIFICANT 3Q14 PROJECTS UNDER CONSTRUCTION
BUILDING
MARKET
TENANT
COMPLETION DATE
SQUARE METERS
Two ICC
Xuhui CBD
N.A.
2015
60,000
Shanghai Tower
Lujiazui
Regis
2015
220,000
3 Corporate Avenue
Huangpu
PWC, Pernod Ricard
2015
50,342
Century Link
Zhuyuan
N.A.
2015~2016
130,000
The Metropolis
Zhuyuan
N.A.
2015~2016
131,300
Dazhongli Project
Jing’an
N.A.
2016
172,000
H. W. Xinzha Project
Jingan
N.A.
2016
42,500
J.P. Morgan & COHL
Huangpu
N.A.
2016
93,000
Bund Financial Center
Huangpu
N.A.
2015~2016
190,000
*Expansion leases
Cushman & Wakefield China, Inc.
26F The Headquarters Building
No.168 Xizang Zhong Lu,
Shanghai 200001, China
(+86) 021 2320 0808
www.cushmanwakefield.com
For more information, contact:
James Shepherd
Executive Director,
Head of Research, Greater China
86 21 23200921
james.shepherd@ap.cushwake.com
This report has been produced by Cushman & Wakefield China for use by those with an interest in commercial property solely for information
purposes. It is not intended to be a complete description of the markets or developments to which it refers. The report uses information
obtained from public sources which Cushman & Wakefield China believe to be reliable, but we have not verified such information and cannot
guarantee that it is accurate and complete. No warranty or representation, express or implied, is made as to the accuracy or completeness of
any of the information contained herein and Cushman & Wakefield China shall not be liable to any reader of this report or any third party in any
way whatsoever. All expressions of opinion are subject to change. Our prior written consent is required before this report can be reproduced in
whole or in part. Should you not wish to receive information from Cushman & Wakefield China or any related company, please email
china@ap.cushwake.com with your details in the body of your email as they appear on this communication and head it “Unsubscribe”. ©2014
Cushman & Wakefield China All rights reserved.