MARKET OVERVIEW
The quarter was marked by confirmation that lower-end rents (below RMB 4.0/sqm/day) are now becoming significantly more difficult to find. Indeed, it appears there has been a seismic shift in this respect. While at the upper end of the market, more buildings are starting to join the club of those able to charge above RMB 12.0/sqm/day. In the absence of any major new stock becoming available in the downtown area, rental prices continue their upward pressure as vacancy rates remain historically low. Focus is likely to switch to Pudong, to see whether supply in this area might start to impact price levels in the city centre, as companies consider relocating on cost considerations.
LARGER OFFICES
There was a fall in the availability of 250-500sqm offices through the quarter, down to 62 from 97 last quarter. We found only 25 units in the sub RMB 5.5/sqm/day range, reflecting both strong demand and, a general rise in rents which has pushed many units out of this price bracket. However, there were some interesting bargains, such as 300sqm in Yujia Mansion on Huashan Rd at just RMB 3.0/sqm/day a 400sqm in Xiangyang Mansion at RMB 3.8/sqm/day and 530sqm in Mingyuan Century Plaza on Fuxing Rd. at RMB 4.0/sqm/day. At the higher end of the market, we expect units currently available in The Center and KWah Building will attract significant market interest, with a number of companies actively seeking accommodation in these locations.
SMALLER OFFICES
The number of units in the 50-250sqm range continued to drop, down to 117 at quarter end. Of these, some 55 units were available at under RMB 5.5/sqm/day and 29 above the RMB 12.0/sqm/day range. There was good availability in the sub-100sqm range with some 32 units on the market. A new development which has been sold off to private landlords on Jiangsu Rd. will provide some of the best value offices for those seeking smaller units over the next 2 quarters. We expect rents here to be in the range of RMB 5.0-5.5/sqm/day, though these may vary significantly according to individual investor expectations. Pick of the bunch would be the 80sqm unit in the historic parade near Ruijin Hotel ¨C a development which is difficult to get into but very popular with those looking for unusual alternative accommodation.
PUDONG
This quarter 14 buildings claimed to be fully occupied. We were able to identify 15 available units in the 100-200sqm range, representing a decline of 40% on last quarter and a further 13 between 200-300sqm, representing a decline of 32%. Anything smaller than 100sqm should go for business centres, with new openings including China Home and MLS (a UK operator), ensuring good value remains in this section of the market. For smaller occupiers, some of the best deals continue to come from strata title buildings. These offer high quality Grade-A offices in smaller lot sizes and at affordable prices. Examples of this type of building include Zhongrong Hengrui, Gongsheng Building and Double Dove.
OUT OF TOWN
Further out of town, we continue to favour The New Factories near Shanghai Circus (metro line-1), which include a Grade-A office tower with some stunning former industrial buildings. Rents here start at RMB 4.5/sqm/day. In Hongqiao the Modern Logistics Park on Hongcao Rd., (metro line-9) offers 25,000sqm of office and retail accommodation at rents starting at just RMB 3.0/sqm/day.
