Shanghai to lead top-end office market by 2020

Shanghai is expected to replace Hong Kong as China's largest office market by 2020, with its top-end office stock surging 80 percent from the current level to 13 million square meters. [Photo by Shao Chang / Asianewsphoto]

Shanghai is expected to replace Hong Kong as China's largest office market by 2020, with its top-end office stock surging 80 percent from the current level to 13 million square meters, a report said.

The report added there won't be a supply glut because demand will expand accordingly.

Although Grade-A office area in the nation's financial hub will nearly double by 2020, strong demand from such sectors as financial and professional services, healthcare and retail industries will be able to absorb the huge supply to keep the city's vacancy rate in single digits, the report said.

The findings were issued by international real estate advisory company Jones Lang LaSalle, known as JLL. It expects Shanghai to benefit from robust growth in the above-mentioned industries over the coming seven years.

"Both market and policy forces will drive growth in the service sector and, in turn, office demand in Shanghai. The evolving office landscape will offer occupiers a greater selection and higher quality stock to meet the needs of multinational institutions and increasingly demanding Chinese tenants," said Anthony Couse, JLL's managing director, East China.

In the process of building Shanghai into an international financial and trading center, the significant growth in the service sector will generate sufficient demand for Shanghai's top-end offices, said the report.

Shanghai's existing central business district is set to receive about 2.3 million sq m of office space over the next seven years, while new business districts outside the district will add around 3.4 million sq m of office development, added the report.

"We expect to see a changing pattern of demand in Shanghai's office market," said Joe Zhou, JLL's head of research for East China.

According to Zhou, expansion requirements and rising rents will lead an increasing number of large-sized occupiers from the healthcare and retail industries to gradually move out of the city's central business district. The space left by their decentralization will be filled by financial and professional service firms, which will remain in the district regardless of the level of rents because of the nature of their business.

"Meanwhile, Chinese corporations and emerging sectors will occupy space both in the CBD and decentralized areas," Zhou added. In stark contrast with a sufficient new supply is the limited new supply reaching the market in the core parts of the central business district.

This resilient demand will continue to propel rents upward, according to Zhou.

Far from falling, rental values for Grade-A offices in the central business district will easily increase by 50 percent or more by the decade's end, said another report on Shanghai's future office market published on the same day as JLL's.

However, in the short term, many analysts forecast a slower growth in gross domestic product is likely to create weak demand for office space.

Supply is expected to start increasing, with close to 700,000 sq m forecast in 2014 in core locations and a further 1.3 million sq m scheduled for 2015, according to the report from Savills Plc, a UK-based real estate adviser.

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