Shanghai, October 10th (Xinhua) -- According to a report released by JLL on October 10th, the activity of the office and retail property leasing market in Shanghai has improved in the third quarter of 2024.
Yao Yao, Director of Research at JLL China, said, "Rent incentives have become the main driving force behind cost oriented relocation activities and the overall upgrade of the office rental market
In the Shanghai Grade A office building market, the city's net absorption increased to 152460 square meters in the third quarter of 2024. Zhu Xidong, senior director of Jones Lang LaSalle's Shanghai Commercial Real Estate Department, said: "In the Central Business District, insurance companies, law firms, technology Internet enterprises and other domestic funded enterprises have seized the current favorable leasing conditions to carry out large-scale relocation activities. At the same time, foreign tenants still remain cautious, and most of them choose to renew their existing office space."
In non central business districts, the net absorption of the office building market was recorded at 103119 square meters. As the rental gap between some Grade B and Grade A office buildings gradually narrows, more high-quality tenants in Grade B office buildings are considering relocating and upgrading to Grade A office buildings.
From the supply situation, two Grade A office building projects were completed and delivered in Shanghai in the third quarter, with a total construction area of 163856 square meters. In the Central Business District, the Nanjing West Road section recorded the completion and delivery of a project with a total construction area of 91161 square meters. The delivery of new projects further increased the vacancy rate in the central business district by 0.6 percentage points month on month to 16.2%. One project has been completed in the non central business district, with a total construction area of 72695 square meters. Although the pre lease of newly completed projects is limited, the demand for relocation and upgrading driven by rent has led to a 0.5 percentage point decrease in the vacancy rate of non central business districts compared to the previous period, reaching 29.6%.
In terms of rent, the rental prices of office buildings in Shanghai continued to decline in the third quarter, and the overall market continued to be favorable for tenants. JLL believes that the rental pressure brought by the new supply and the limited demand sources in the market have made homeowners more cautious: the rent in the central business district has decreased by 5.0% month on month, and homeowners are reducing the price difference with non central business district projects by providing more rental discounts to maintain their current occupancy rate; The rent in non central business districts decreased by 4.3% compared to the previous period. The decline in rent in non central business districts has driven the upgrading needs of some Grade B or park tenants, while also enhancing the relocation willingness of some cost driven tenants in central business districts.
It is worth noting that in addition to rental discounts, some homeowners are willing to provide more diverse one-time investment plans for high-quality customers to facilitate leasing transactions. JLL expects that in the face of a large amount of new supply in the future, projects and sectors with high vacancy rates will continue to face downward rental pressure.
In the investment market, in the third quarter of 2024, the Shanghai investment market completed a total of 28 transactions with a total transaction volume of 17.26 billion yuan, an increase of 14.3% compared to the second quarter. In the completed projects, the proportion of projects with an amount of less than 1 billion yuan is as high as 79%. Although some foreign and domestic insurance institutions have taken some actions, most investors still choose to be cautious and wait.
In terms of transaction categories, office assets consistently rank first in the investment market with 34% of transaction amounts and 46% of transaction numbers. Retail properties have also shown strong appeal, with a transaction volume of 24% in the third quarter. Foreign institutions actively entered the market to seek stable income projects, while high net worth individuals successfully laid out through channels such as auctions. At the same time, assets such as commercial complexes accounting for 17%, industrial parks accounting for 12%, and hotels accounting for 6% are also active, jointly creating a diversified investment market pattern.
From the perspective of investment purposes, the market has clearly returned to investment dominance, with investment accounting for 72% and self use accounting for 28%.
In the third quarter, foreign investment showed a clear trend of return, with the proportion of investment transactions increasing from 3% in the second quarter to 37%. The positive trend indicates that capital flows will be more active in the future. In terms of buyer composition, the investment enthusiasm of enterprises and high net worth individuals in Shanghai has significantly increased, with a total investment transaction proportion of 57.6%, becoming an important force driving market activity in the third quarter.
Sun Ling, the head of investment and capital markets at JLL East China, expects that more large institutional investors will return to the market in the future, jointly pushing the trading volume of the Shanghai market to a new level.