Companies hunt for cheaper rents in Shanghai as weak office market pushes up vacancies
“The trend of tenants pursuing new leasing deals in non-CBD areas continued,” he said. “Falling rents have prompted large corporate clients to seize the opportunities to save on rent.”
In the decentralised market, three new office buildings unleashed 220,700 square metres (7,535 sq ft) of space in the three months ended June, intensifying competition among landlords while driving the vacancy rate to 30.1 per cent, up 0.5 percentage points from March. In CBD regions, the average vacancy rate stood at 15.6 per cent last month, up 0.3 percentage points quarter on quarter.
Brokers said tenants could request discounts as steep as 50 per cent if they agree to sign long-term leasing deals for some non-CBD office space.
Landlords of ageing buildings and projects with high vacancies are under pressure to offer lower rents and more incentives to attract and retain tenants.
“Further declines of rents are expected, as the office market remains stuck in a downward cycle,” said Yin Ran, a property investor in Shanghai. “Big tenants are increasingly active in hunting for cheap workplaces.”
JLL data showed that 7 per cent of leasing deals signed by its clients in the second quarter involved office space larger than 5,000 square metres, compared with 4 per cent in the January to March period.
Average rents have dropped sharply across the city owing to an oversupply of office space and slowing local economy. Last year, 1.58 million square metres of new grade-A office space hit the market, a year-on-year increase of 87 per cent.
Shanghai, dubbed China’s economic locomotive, failed to achieve its growth target for 2023 because of lacklustre exports, with gross domestic product expanding by 5 per cent to 4.72 trillion yuan (US$649.2 billion). The pace of growth fell short of the 5.5 per cent target set by the local government at the beginning of last year.
The mainland economy grew by 5.2 per cent last year, while Jiangsu and Zhejiang, Shanghai’s neighbouring provinces, reported 5.8 per cent and 6 per cent year-on-year GDP growth, respectively.
In the first half of 2024, Shanghai economy expanded 4.8 per cent on year, 0.2 percentage points lower than the national average of 5 per cent.
Early this year, the municipal government set a goal of 5 per cent economic growth for 2024.
Shopping malls in Shanghai saw a recovery in the second quarter buoyed by consumer spending on food, sportswear and fast-fashion brands.
The vacancy rate for the city’s primary market slid to 9.2 per cent in June, from 10.3 per cent three months earlier, JLL data showed.
Shanghai also bucked the downward trend in mainland China’s residential property sector, with prices of newly built homes rising by 0.4 per cent and of pre-owned flats by 0.5 per cent.
Aggregate prices of newly built flats across 70 major cities fell by 0.7 per cent from a month earlier, and prices of lived-in homes dropped by 0.9 per cent from May.
According to brokers in Beijing, the office market in CBD areas remains stable but decentralised blocks have witnessed a jump in vacancy rates as failed businesses such as insolvent property developers renege on leasing agreements.
Additional reporting by Yuke Xie.
