15 October 2013, Shanghai –- With the establishment of the China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ), services from finance to shipping are being opened up to outside investment. In the property market, the Shanghai FTZ will have a powerful effect on various asset types. Our research shows this is already visible within and around the zone, with the strongest influence being in the office market, where a surge in demand has led to a spike in both office rent and price.
Data from CBRE Research show that the average office asking rent within the zone (mainly Waigaoqiao) in July & August was RMB 2.1 psm per day. It began to increase after September and achieved nearly 100% growth to RMB 4.2 psm per day at present. The asking rent of Tomson International Trade Building, the most expensive office building in Waigaoqiao, surged from RMB 3.0 psm per day in the past to RMB 4.5 psm per day by the end of September, and further to RMB 7.0 psm per day after the National Holiday.
Given Waigaoqiao’s relative strength in administration, finance, connectivity, overall development and supporting amenities, CBRE expects this area will become the CBD of the Shanghai FTZ, driving the office rents up in the long run. The aged and small-scale office stock Waigaoqiao currently possesses will not be able to meet the rapidly-increasing and upgrading demand along with the further opening-up of the service sector. Therefore, we believe the re-zoning of developable land and renovation of existing projects in Waigaoqiao will be the ultimate choice.
According to CBRE, the stock of high-quality warehouse in Shanghai FTZ amounts to about 780,000 sm with rents ranging between RMB 1.1-1.5 psm per day and an overall vacancy rate at 20%. It is expected that GLP will deliver about 210,000 sm of high-quality warehouse in Waigaoqiao by 2015. Demand for high-quality warehouses in the Shanghai FTZ will rise over the long term, thanks to the greater convenience and efficiency of trade, and the further opening-up of trade-related services in shipping, logistics and finance. The key beneficiary will be the industrial property market in the expanded Yangshan Bonded Port thanks to its current low land and property prices and ample developable resources as well as its increasingly critical role in Shanghai’s port business.
Meanwhile, both the sales volume and price of residential projects near Shanghai FTZ increased markedly in September. The inauguration of the Shanghai FTZ is expected to greatly raise the positioning of residential submarkets near the zone. The current price gap between Lingang New Town and other suburban new towns of Shanghai will be gradually filled, while Sunland International Community will enhance its positioning as the only mid-to-high-end residential community currently nearby the Shanghai FTZ.
Along with the opening-up of the service industries in the Shanghai FTZ, we believe it will result in a large group of professionals moving to work and live in the area. The current retail amenities in Shanghai FTZ are mid-to-low end, limited in number, and hence need upgrading in both quantity and quality. Since the FTZ will enhance the positioning of surrounding areas and the population is set to boom, large-scale and multi-functional retail properties will be at a premium.
The Shanghai FTZ will accelerate the congregation of high-profile corporations in Shanghai and thus drive up office demand across the city. Within Shanghai, the establishment of FTZ will increase competition among sub-markets, especially with submarkets with a similar industry positioning. We suggest such submarkets should differentiate in terms of timing and desired industry during its promotion; to take advantage of the current supply drought in the Shanghai FTZ and its proximity to the city’s core CBD to attract occupiers moving out of the city centre, and to focus more on occupiers whose business is mainly domestic consumption.
The impact of the Shanghai FTZ will spread beyond Shanghai. As the first FTZ in China, Shanghai will further strengthen its competitive advantage in attracting large corporations compared to other large mainland cities. Moreover, cooperation and competition between Shanghai and Hong Kong will heat up as the Shanghai FTZ progresses.
About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (in terms of 2014 revenue). The Company has more than 70,000 employees (excluding affiliates), and serves real estate owners, investors and occupiers through more than 400 offices (excluding affiliates) worldwide. CBRE offers strategic advice and execution for property sales and leasing; corporate services; property, facilities and project management; mortgage banking; appraisal and valuation; development services; investment management; and research and consulting. Please visit our website at www.cbre.com.
