MARKET OVERVIEW
The third quarter of 2006, saw a jump in the number of 50-500sqm units available in the city centre, rising from 327 at the end of June to 676 in September. Despite our prediction of further rent rises being pushed through during the autumn, we are now going to venture a view that rental levels should remain relatively stable through to the end of this year, particularly in the smaller unit sizes. In part this situation will be driven by two new office buildings in JingĄ¯An District (JingĄ¯An Intl Plaza and Ben Ben Mansion) which have come onto the market, there is also evidence of more attractive rents being offered by private landlords at Wangjiao Plaza in Huangpu District, the combined effect of which means reasonable quality new offices can now be rented in the RMB 4.5-5.5/m2/day range. Sharp rises in the availability of mid-sized and larger-units, should also reduce the ability of landlords to push through further aggressive rent rises.
LARGER OFFICES
The marked increase in 400-500sqm offices up to 50 in September guarantees a wide choice of stock for tenants. The availability of this stock is again mainly found in the US$0.70-0.80/m2/day range (i.e. mid-range Grade-B office towers) with 17 units available. Some of the more established Grade-A office towers also have a reasonable amount of stock now available, with over 15 units available in the 400-600sqm range. The indication is more of this type of stock is expected to come into the market through to the end of the year. Tenants moving between now and the end of the year can expect to achieve more attractive deals than would have been possible at any other time in the last 12-months.
MEDIUM OFFICES
The number of units in the 200-400sqm range jumped from 112 at the end of June to 202 in September. There were some 82 units available in the US$0.70-0.90/sqm/day rental bracket and over 30 units available in the US$1.00/sqm/day and above price bracket. We expect the new buildings at Hongyi Plaza in Huangpu District and Ben Ben Mansion in JingĄ¯An, to provide the main competition for more established buildings where rents are up to US$1.20/m2/day. While Wangjiao Plaza and JingĄ¯An Intl Mansion should provide brand new alternatives for prospective tenants of mid-to upper range Grade-B offices.
SMALLER OFFICES
Not to be outdone, availability of smaller units in the 50-200sqm range jumped from 177 at the end of June to 249 in September. Actually the leaders of the pack in this range were right at the budget end in the sub US$0.45/sqm/day range where there were a total of 63 available units, with the next most popular in the US$0.70-0.80/sqm/day with 73 units. In reality, most of this stock will be taken up by the local market rather than overseas tenants. However, its existence is important because availability at this lower end of the market means less competition between local and overseas companies, for the slightly more expensive units.
ALTERNATIVE OFFICES
Shanghai continues to make progress in this regard. We expect by the time this article is published a deal in excess of 3,000sqm will have been concluded with a Japanese occupier, on a newly refurbished warehouse located on Suzhou Creek. Enquiries over the last couple of quarters have also indicated a willingness from other major international companies to look at non-conventional offices. However, a lack of stock and problems with infrastructure and service support, will likely mean this area of the market will play only a minor role in supplying space over the next few years.
We are quite surprised by the jump in availability across all office categories, even taking into account the expected slow down over the summer period. Certainly market conditions in terms of choice seem to have moved in favour of tenants. This is not yet reflected in rents, where we stress there is no indication these are under pressure, although some landlords are being quite aggressive in the terms they are willing to grant prospective tenants. It will be interesting to observe which way occupancy trends over the next 6-months. More tenant choice is a hint at better equilibrium in demand and supply
