In Shanghai, the rent level of office buildings has always led the country. According to the latest data of CBRE, the average rent quotation of high-quality office buildings in Shanghai in 2021 reached 277 yuan / month / square meter, which means that if you want to have 1000 square meters of office space in Shanghai, the monthly rent cost will exceed 270000 yuan.
Since 2016, a large number of office buildings in Shanghai have been supplied to the market. In the past five years, the supply of office buildings in Shanghai has exceeded the demand, and the market has been in a downward state of rent level. This situation was completely reversed in 2021. Although it was still plagued by the epidemic, the Shanghai office market recovered strongly last year. Not only did the net absorption hit a record high, but the rent also increased for the first time in five years.
This is the result of the successful transformation of Shanghai’s economy and industrial structure. Statistics show that in the future, the people who enter and leave the most in and out of class a skyscrapers in Shanghai will no longer be the gold collar of the financial industry. They may come from those emerging tracks. In addition, along both sides of the Huangpu River, a number of new CBD in Shanghai are rising, which provide endless imagination for the future development of the city.
tenants are willing to pay a 20% premium for high-quality office buildings
In 2021, 17 new projects in Shanghai’s high-quality office market entered the market, adding 1.07 million square meters, 1.6 times the volume delivered last year. Although a large number of new projects entered the market, the annual net absorption exceeded the new supply, which was rare in the past.
According to CBRE research statistics, the net absorption of high-quality office buildings in Shanghai reached a record high in 2021, reaching 1.298 million square meters. In the same period of 2020, this figure is only 500000 square meters, with an increase of 160% in 2021. The Cushman & Wakefield office has been active in leasing the office buildings this year, and the net absorption has reached 3 times the number of last year, according to DTZ.
The rent of high-quality office buildings in Shanghai has rebounded for the first time in five years, the average rent quotation has reached 277 yuan / month / square meter, and the vacancy rate has decreased significantly. The Cushman & Wakefield’s vacancy rate dropped to 16% in 2021, and the vacancy rate of 16.6% was compared with the 2020 vacancy rate in Shanghai office.
Previously, the problem of Shanghai office market mainly lies in the supply and demand structure. Five years ago, the rent of office buildings in Shanghai was in the upward stage for a long time and rose to the top in 2016. However, due to a large amount of supply entering the market every year, the rent gradually declined and the vacancy rate increased from 2017.
According to the latest data, this contradiction between supply and demand has been significantly improved in 2021. The annual rent quotation and effective rent of office buildings in Shanghai have increased by 0.7% and 1.2% respectively over the same period last year, leading the country in rent level.
In view of the rise in office rent, Zhang Yue, consultant and head of trading services and office building department of CBRE Lihua East, told China first finance and economics that after the epidemic, the rent premium advantage of LEED related green buildings is obvious. Generally, LEED certified super class A office buildings in the core area. With ESG being widely concerned, health and safety has become a long-term demand of tenants. Generally speaking, these tenants are willing to pay a rent premium of more than 20%.
Generally speaking, the Shanghai office market is subdivided into core business district, emerging business district and business park office buildings. The first two are mostly high-quality grade A office buildings included in the statistics, while the latter takes the Industrial Park as the carrier and is not located in the core area of land and gold, so the rent is low and the vacancy rate is relatively high.
However, in 2021, the office market in Shanghai’s business park also ushered in a recovery. 14 projects were added to the market throughout the year, with a new supply area of 860000 square meters, while the net absorption exceeded the mark of one million square meters. The rent increase reached a new high since 2019. The vacancy rate was 14.5% in the whole year, down 3.4 percentage points from the same period, and the rent quotation was 137 yuan / month / square meter. Most of these business parks are located in Zhangjiang, Jinqiao, Shibei and other plates. The rising energy level of the real economy and gradually enhanced scientific and technological innovation stimulate the market to continuously release strong demand.
strong growth in demand for the new track surpasses the financial industry
Why should the Shanghai office market recover strongly without reducing the new supply?
The answer is industry. Behind office leasing and large transactions, it is the support of enterprises. The adjustment and transformation of industrial structure, the layout and expansion of enterprises have a profound impact on the absorption of the office market.
Shanghai is China’s financial center. In the past, it was well known that financial tenants dominated the skyscrapers in Shanghai’s core business district. In 2020, among the new office buildings in Shanghai, financial tenants accounted for 19%, ranking first, digital new media industry (TMT) accounted for 16%, consumer goods manufacturing accounted for 14%, and medicine accounted for 10%. From the data of office buildings rented by these industries, we can basically understand the industrial structure of Shanghai.
Many years ago, it was suggested that Shanghai performed well in the traditional economic field, but lagged behind in the emerging digital economy, information economy and other fields. However, in recent years, Shanghai has earnestly encouraged and nurtured the development of new tracks and new outlets. Digital new economy, new consumer brands, low-carbon new energy and new forces in car manufacturing have gone hand in hand, and Shanghai’s industrial structure has changed significantly.
This is evident in the office market data in 2021.
Among the new office rental demand throughout the year, the demand of TMT industry led by e-commerce, social media, artificial intelligence, big data and financial technology reached 26%, ranking first, and the financial industry retreated to second.
However, even if it retreated to the second place, the financial industry dominated by financial leasing, funds, banking and insurance still expanded significantly, accounting for 19% of the demand, and 70% chose to gather in Pudong. An important reason is that the CPC Central Committee and the State Council issued the opinions on supporting the high-level reform and opening up of Pudong New Area and building a leading area for socialist modernization in 2021.
The third largest rental demand for office buildings is consumer goods manufacturing, accounting for 10%. In recent years, the new consumer industry in Shanghai has developed rapidly. 100 years ago, Shanghai was the largest city in the Far East. Countless Chinese national brands started from Shanghai beach to the whole country. Now in the new era, Shanghai has become the source and new highland of new Internet consumption.
According to the tmall platform data, during 618 in 2021, the number of new brands that topped the tmall segment industry reached 459, of which 63 were Shanghai brands, ranking first in China. “Brother with goods” Li Jiaqi once revealed that 80% of the new brands sold in his studio came from Shanghai. Therefore, Shanghai is becoming the most suitable city for new consumption and entrepreneurship. At the same time, more and more international brands choose Shanghai as the starting place of global new products, move the Asia Pacific headquarters to Shanghai, and even directly build R & D bases around Shanghai, just to catch up with the rapidly changing consumer demand.
In addition to the top three industries, according to CBRE data, the expansion of biomedical enterprises related to “specialization and innovation” became more and more active, the demand for foreign capital recorded a significant recovery, and the professional service and third-party office service operators led by law firms also continued to have a stable layout during the year.
CBRE Zhang Yue believes that the strong recovery of office demand in Shanghai in 2021 reflects Shanghai’s national leading position in the strategic layout of emerging industries and its foreign investment attraction as a window city to the outside world.
the lowest vacancy rate recorded on the foreshore of the new plate
The reversal of the office market in Shanghai is also related to the rise of diversified sectors in the whole city of Shanghai and the rise in the number of “super tenants”.
In recent years, in addition to the traditional core areas such as Shanghai Lujiazui Finance & Trade Zone Development Co.Ltd(600663) , Nanjing Road and people’s Square, Shanghai has focused on the development of three emerging core areas along the Huangpu River – Qiantan, Xuhui Binjiang and North Bund. Multiple CBD have risen at the same time, providing broad prospects for the development of Shanghai office market.
Previously, the outside world has always questioned: does Shanghai’s economic development really need so many CBD? According to the latest data in 2021, the development of emerging CBD in Shanghai is very successful.
The CBD with the lowest vacancy rate of office buildings in Shanghai is not in the core business district, but in the front beach of the new plate. In recent five years, the volume of office buildings in Qiantan has increased explosively. In 2021, Qiantan recorded the lowest vacancy rate of 2.6% in Shanghai, and the rent also showed a trend of catching up with and surpassing the mature plate.
The tenant structure of Qiantan office building is also different from the traditional core business district. The pharmaceutical and life sciences industry is the largest tenant in Qiantan, accounting for 18.9%, the second largest industry is consumer goods manufacturing, accounting for 18.3%, and the third is the financial industry.
From the history of world urban development, the construction and development along the waterfront is a common trend in both New York and London. Shanghai’s development along the Pujiang River still has great potential. Compared with the world’s top cities, from the perspective of economic scale, Shanghai is only one third of New York, and the per capita GDP is one quarter of New York. According to CBRE’s statistical caliber, the area of high-quality office buildings in Shanghai is currently more than 17 million square meters, while that in New York has reached more than 70 million square meters, from which we can see the long-term and sustainable development space of Shanghai office market.
“At present, Shanghai’s multi-core development is leading in the whole of China. It is also very necessary to continue this development trend.” An insider told China first finance.
In addition, throughout 2021, “super tenant” still provides a strong boost to the development of Shanghai office market.
From 2020, the number of “super tenants” in Shanghai office market is rising sharply. Super tenants refer to enterprises with a leased area of more than 10000 square meters. Sometimes a company can “eat” an entire office building project.
In 2021, the strategic layout of the head enterprise brought about a large demand for leasing in the whole area. The new track enterprises, such as head finance, Internet plus and sophisticated manufacturing, are still located in Shanghai.
There are super tenants and super buyers. In 2021, Shanghai’s block trading market returned to the order of 100 billion, of which office related property transactions accounted for 52%. Behind the active market is investors’ affirmation of the long-term good trend of China’s economic fundamentals.
