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It's a cold wind blowing through Shanghai for tenants this winter, with recent figures showing a happier Christmas for landlords. And, as the calendar year draws to a close, the trend for next year looks set to continue favouring landlords.
Although our survey shows office buildings with no available space have fallen from a peak of 79 in September to only 47 currently, total units available remains constant at around 145 across all buildings – giving an average of just 1 available unit per building in our survey! A further notable aspect of this statistic is the speed with which units are turning over. This varies according to the size of the unit. Units still available after two-months, have been divided into size and show below:
Size (m²) Still available after 2-months
0-50 2
50-100 0
100-150 7
150-200 8
200-300 10
300-400 0
As can be seen from the above the smaller offices units tend to have the fastest turnover. While a number of the units in the 100-150 range have no windows or other defects, which will necessarily slow down their turnover time. In short, units when they become available, are not around for long.
A further notable aspect has been the hardening in price levels across the market. Our survey looks at those properties which clients might normally be expected to find suitable for a western-style office location. These are divided into three different categories (i) Budget (ii) Grade B (iii) Grade A. Quoted rents exclude management charges.
Category Range (US$/m²/day)
Budget 0.30-0.45
Grade-B 0.45-0.70
Grade-A 0.70+
Another aspect of the current market environment are the rent free or renovation periods clients can expect to achieve. Rent free periods are normally a reflection not just of the amount of work a client may need to undertake but also the actual level of demand, currently prevailing for the unit. Recent examples in buildings which had low vacancy rates include 6-weeks for a 400sqm unit and 3-weeks for 170sqm, with 2-weeks for a 100sqm unit.
Finally with regard to lease periods, these are starting to be reduced to reflect landlord's perception of a rising market. While obtaining 3-year contracts earlier this year, with perhaps a rise of 5-10% after the 2nd year was relatively easy, landlords are now trying to negotiate shorter (2-year) periods, in the expectation of lucrative renewals thereafter.
The above doesn't make good reading for tenants. Currently there is little prospect of this environment changing, particularly in light of the impressive take-up achieved by many of the newer developments such as Corporate Avenue, KWAH Building and The Centre. These have done more to solidify prices at the higher end of the market, than push up vacancy rates in lower grade buildings. So, looking forward to next year, we hope tenants are expecting exciting business prospects – because landlords certainly will be.
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