1 savills.com.cn/research MARKET IN MINUTES Savills Research Office Shanghai – April 2021 A good start to 2021 Grade A office vacancy rates fell on the back of recovered demand. Savills plc Savills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research. Peter Sheng Senior Director Shanghai +8621 6391 6688 peter.sheng@ savills.com.cn Cary Zheng Senior Director Central China +8621 6391 6688 cary.zheng@ savills.com.cn COMMERCIAL James Macdonald Senior Director China +8621 6391 6688 james.macdonald@ savills.com.cn RESEARCH Please contact us for further information Savills team “Decentralised rents recovered by 0.3% in Q1/2021, supported by office demand for cost- saving, expansion and consolidation.” JAMES MACDONALD, SAVILLS RESEARCH • Actual foreign direct investment in Shanghai increased by 6.2% in 2020, versus a 42% plunge globally, indicating that the city remains attractive to foreign companies and economically resilient despite the pandemic. • Only one new project, Sunglow Riviera (South Tower), was handed over onto the Grade A office market, as several landlords delayed launches due to unsatisfactory pre-lease rates. • Net market absorption totalled 198,800 sq m in Q1/2021, of which 77% of the space was contributed by decentralised areas. Prime areas continued to record negative net take-up during the period as cost-saving leases continued to drive office demand. • Retail consumer companies remained active in taking up large office space in the city, with some eyeing recently completed developments. • Citywide Grade A office vacancy rate fell 1.0 percentage point (ppt) in Q1/2021 to 15.8%, while effective rents declined 0.3% in Q1/2021 to an average of RMB7.3 psm pday. • Several owners are sending part of their office spaces to the leasing/sales market due to cost-saving and cashflow considerations. • In response to the government’s call for greater sustainability, more domestic tech giants, such as Tencent and Huawei, have started to work on green solutions. Sustainably-rated buildings could see better occupancy going forwards as the government and society push corporates to look at their carbon footprints. Leon Fu Senior Director Shanghai +8621 6391 6688 [email protected]Definitions Core prime: Nanjing Road (W), Huaihai Road (M), Lujiazui Core non-prime: Old Huangpu, South Huangpu, Hongqiao, North Station, North Bund, Zhuyuan and Xujiahui. Decentralised markets: All areas outside of the core markets including Changfeng, Hongqiao Transportation Hub, Xuhui Riverside, Xinzhuang, Zhenru, Wujiaochang, Former Expo, Qiantan, Houtan and Huamu. Joey Chio Senior Director China +8621 6391 6688 joey.chio@ savills.com.cn TRANSACTION AND ADVISORY COMMERCIAL TENANT REPRESENTATION
Transcript
1savills.com.cn/research
MARKETIN
MINUTES
Savills Research
Office Shanghai – April 2021
A good start to 2021Grade A office vacancy rates fell on the back of recovered demand.
Savills plcSavills is a leading global real estate service provider listed on the London Stock Exchange. The company established in 1855, has a rich heritage with unrivalled growth. It is a company that leads rather than follows, and now has over 600 offices and associates throughout the Americas, Europe, Asia Pacific, Africa and the Middle East. This report is for general informative purposes only. It may not be published, reproduced or quoted in part or in whole, nor may it be used as a basis for any contract, prospectus, agreement or other document without prior consent. Whilst every effort has been made to ensure its accuracy, Savills accepts no liability whatsoever for any direct or consequential loss arising from its use. The content is strictly copyright and reproduction of the whole or part of it in any form is prohibited without written permission from Savills Research.
“Decentralised rents recovered by 0.3% in Q1/2021, supported by office demand for cost-saving, expansion and consolidation.” JAMES MACDONALD, SAVILLS RESEARCH
• Actual foreign direct investment in Shanghai increased by 6.2% in 2020, versus a 42% plunge globally, indicating that the city remains attractive to foreign companies and economically resilient despite the pandemic.
• Only one new project, Sunglow Riviera (South Tower), was handed over onto the Grade A office market, as several landlords delayed launches due to unsatisfactory pre-lease rates.
• Net market absorption totalled 198,800 sq m in Q1/2021, of which 77% of the space was contributed by decentralised areas. Prime areas continued to record negative net take-up during the period as cost-saving leases continued to drive office demand.
• Retail consumer companies remained active in taking up large office space in the city, with some eyeing recently completed developments.
• Citywide Grade A office vacancy rate fell 1.0 percentage point (ppt) in Q1/2021 to 15.8%, while effective rents declined 0.3% in Q1/2021 to an average of RMB7.3 psm pday.
• Several owners are sending part of their office spaces to the leasing/sales market due to cost-saving and cashflow considerations.
• In response to the government’s call for greater sustainability, more domestic tech giants, such as Tencent and Huawei, have started to work on green solutions. Sustainably-rated buildings could see better occupancy going forwards as the government and society push corporates to look at their carbon footprints.
DefinitionsCore prime: Nanjing Road (W), Huaihai Road (M), LujiazuiCore non-prime: Old Huangpu, South Huangpu, Hongqiao, North Station, North Bund, Zhuyuan and Xujiahui.Decentralised markets: All areas outside of the core markets including Changfeng, Hongqiao Transportation Hub, Xuhui Riverside, Xinzhuang, Zhenru, Wujiaochang, Former Expo, Qiantan, Houtan and Huamu.
GRAPH 1: Grade A Office Overall Supply, Take-up And Vacancy, 2016 to Q1/2021
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GRAPH 2: Grade A Office Rental Indices, Q2/2016 to Q1/2021
Source Savills Research
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Source Savills Research
GRAPH 3: Grade A Office Vacancy, Q2/2016 to Q1/2021
Source Savills Research
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MARKET OVERVIEWThe new year got off to a good start, with net Grade A office take-up standing at 198,800 sq m in Q1/2021, exceeding 20% of the quarterly absorption level over the past 24 months, and vacancy rates falling 1.0 ppt. Rental decreases narrowed further with several highly sought-after locations with falling vacancy rates such as Qiantan and North Bund adjusted their rates up moderately from low bases.
Only one new project, Sunglow Riviera (South Tower) in Xuhui Riverside, launched onto the city’s Grade A office market in Q1/2021, adding 65,500 sq m of new office space and bringing the stock to 14.1 million sq m. However, the limited supply is temporary as seven projects, or 558,500 sq m of office space, are scheduled to launch in Q2/2021, including the JC Mandarin Plaza in Nanjing Road (W), converted from the JC Mandarin Hotel, and the 126,000-sq m SK Tower in Houtan.
Submarket take-up performances diverged, with the non-prime areas of North Bund, South Huangpu and decentralised areas of Qiantan and HTH outperforming. However, prime areas recorded 38,000 sq m of office space handed back to the market in Q1/2021, despite landlords’ efforts to shore up occupancy like increasing rental concessions and introducing flexible workspaces to fill up vacant space. For example, W+HUB, a locally-based business centre operator, leased 3,500 sq m of Grade A office space in Little Lujiazui.
The North Bund area has attracted many financial institutions and high-profile enterprises such as SPD Bank and Huawei, benefiting from accelerating urban rejuvenation and proximity to the Little Lujiazui area. Vacancy rate in the North Bund area recorded its sixth consecutive quarterly decrease of 4.1 ppts in Q1/2021 to 32% or a cumulative drop of 13.4 ppts from its peak in Q3/2019 when significant supply was launched. Effective rents recovered by 1.1% on an index basis in Q1/2021 to an average of RMB6.2 psm pday, supported by strong demand.
Grade A office rents fell but at a slower rate of 0.3% in Q1/2021 on an index basis, bringing the average rent to RMB7.3 psm pday. Prime rents stood at RMB9.4 psm pday, non-prime at RMB7.1 psm pday and decentralised at RMB5.5 psm pday. Qiantan saw the biggest rental increase of 3.1% out of all business areas, boosted by robust demand for relocations, expansions and consolidations.
MARKET OUTLOOKMore than half a million sq m of new space is expected to launch in Q2/2021, of which over 80% will be in decentralised locations. Vacancy rates will most likely increase again, assuming steady take-up. Financial, professional services, IT and retail sectors will continue to dominate office demand, while consumer services and healthcare industries are likely to be the key growth markets in 2021.
Shanghai is accelerating the construction of digital facilities such as 5G base stations (e.g., North Bund), big data centres (e.g., West Hongqiao, Lingang) and artificial intelligence (e.g., Xuhui Riverside). The boom in the online economy in the wake of COVID-19 will continue to bring opportunities to tech firms in online education, online entertainment, e-commerce and telecommuting, thus generating increasing demand for office space. Examples include Meituan and Bilibili acquiring commercial land plots in East Bund to build self-use headquarters.
Covering 7,000 sq km of land area, with 2,100 sq km in Shanghai, the Hongqiao International Opening-Up Hub, stretching from HTH to neighbouring cities in Jiangsu and Zhejiang, will enhance the integrated development of the Yangtze River Delta, facilitate the opening up to domestic and overseas regions and bring companies more business opportunities with a more open and dynamic market environment.
Office
TENANT TENANT INDUSTRY PROJECT BUSINESS
DISTRICTLEASED
AREA (SQ M)
Pernod Ricard Retail & Trade The Roof South Huangpu 6,000
W+HubBusiness Centres
& Co-working Spaces
21st Century Tower Lujiazui 3,500
17 Education & Technology
Consumer Services Westlink Xinzhuang 2,300
Jincai Logistics Transportation Sinar Mas Plaza North Bund 2,000
