Market overview
The second quarter of 2006, saw a sharp fall in the number of 50-500sqm units available in the city centre, down from 433 at the end of March to 327 at the end of June. This has not yet been matched by a corresponding rise in asking rents, which we take as a sign as the market still adjusting to the higher levels pushed through last year and in the first quarter of this year. Interestingly, though not directly effecting prospective tenants, some landlords of smaller buildings have started cutting the commission rates paid to introducing agents. A sure sign they are feeling in a strong position regarding vacancies and prospective take-up of space. With this evident tightening of supply, we suspect landlords will try and push through further rent rises in the autumn.
Larger Offices
There was a marked decrease in the larger units available on the market. The 400-500sqm range, saw a net decrease of 24 units over the quarter to 20 in total. This fall was mainly attributed to a decline in the US$0.60-0.70/sqm/day range, where 25 available units in March fell to only 9 at the end of June. Even at the higher budget end, for those offices above US$1.00/sqm/day, unit numbers fell from 11 to 5. Deal of the month for the larger office range is a 606sqm office near People¡¯s Square, being offered at US$0.53/sqm/day including management fees.
Medium Offices
The number of units in the 200-400sqm unit fell to 112 in total, a net change of 34 units on last quarter. Again, the majority of this fall was in the US$0.60-0.70/sqm/day range, where 68 available units declined to just 35. For units above US$1.00/sqm/day availability remained broadly constant at 28, a net fall of just 6 units. Deal of the month for the mid office range is a 290sqm unit in a high quality building on Nanjing Rd., being offered at US$0.68/sqm/day.
Smaller Offices
Following on from the above pattern, there were decreases in small (50-200sqm) units available over the period, falling by 30 units to 177 in total. Much of this decline came from take-up in the 100-150sqm range, again at rentals of between US$0.60-0.80/sqm/day. Here unit availability fell by net 14 to 32 in total. Deal of the month for the smaller office range is a 72sqm space on Huaihai Rd. in one of the Grade-A buildings. Small units like this, in the better buildings, are very hard to find.
Creative spaces
While we won¡¯t always include this section in the quarterly report, a number of interesting spaces are currently on the market and worthy of note. Prices also differ considerably from US$0.88/sqm/day for warehouse style space on Huaihai Rd. and a historical development on Wukang Rd. through to rents of around US$0.44/sqm/day for industrial style warehouse and loft accommodation behind Jing¡¯An Temple and in the south on Xietu Rd. Worth a look for companies seeking to project an alternative image from their workplace.
Some of the Grade-A buildings on Huaihai Rd., have continued pushing rents up over the last quarter. However, in general we feel there has been a brief pause in rental inflation, following rises in the first quarter. Given the increasing attention to commercial real estate in daily newspapers and magazines along with high take-up rates in the middle market sector, we see further rent rises in the autumn being the most likely market scenario.
