CBRE Releases Shanghai Property MarketView for Q3 2013
15 October 2013, Shanghai –CBRE Shanghai recently published Shanghai Property Market Press Release Q3 2013. According to this report, a total of 52,500 sm of new supply added to Shanghai office market during the third quarter. Office supply is expected to add 380,000 sm 80% of which are distributed in Puxi. As for the retail market, bringing new brands to the city has been employed by more and more landlords to differentiate their malls from competitors. Steady rental growth and active demand of quality warehouse market attracted great interests from investment institutions in industrial markets. As for the luxury residential market, apartment priced between RMB 60,000 and 80,000 psm will maintain its popularity among high end consumers with upgrading demands. Shanghai FTZ was officially launched at the end of September, which is expected to stimulate the demands for office and industrial properties across the city from a long-term perspective.OFFICE：A TEMPORAL STABILIZING SIGN AFTER A 12-MONTH SOFTENING. 80% of 380,000 SM NEW SUPPLY IN NEXT SIX MONTH DISTRIBUTED IN PUXI.
One Grade A office buildings, Garden Square was completed during the third quarter, adding a total of 52,500 sm of new supply to Shanghai office market. New leasing and inquiries remained slow with MNCs’ persistent concerns upon cost and cautiousness towards expansion. Renewals continued to be the mainstream at this moment for occupiers who also keep a close eye on strategic opportunities, realizing a substantial pipeline in the following years. The quarterly net absorption, therefore, totaled 121,540 sm, basically flat compared with that of the previous quarter. At the end of this quarter, the overall vacancy rate decreased by 0.7% to 7.0%.. Decentralization continued as we noticed tenants continuously moving out of traditional CBD like Huangpu to neighboring but less expensive districts like Zhabei, Hongkou and Yangpu.
The average asking rent stayed flat at RMB 250.8 psm per month, up marginally by 0.3% q-o-q on like-for-like basis, which shows a temporal stabilizing sign after a 12-month softening. Many office landlords are actually becoming more adaptive, quickly adjusting incentives and achievable rental levels based on changes in vacancy rate and future supply.
Office supply is expected to rise in the next six month with a total new completion of 380,000 sm, over 80% of which are distributed in Puxi. Despite the positive impacts by the benign economic signals upon office demand, we believe the market will remain tenant-favored given the quantum of pipeline. In addition, the projected supply peak after the 2nd half of 2014 will also persuade some occupiers to consider postponing the expansion plan to obtain better leasing options and terms. That said, we are not expecting a significant improvement on the market demand and rents in the short term.
During the third quarter we saw some headline policies release in favor of the development of office market in Shanghai. In July, Huangpu district government officially announced ‘10 Key Measure to Promote the Developing Bund Financial Innovation Pilot Zone’, providing preferential policies and convenience to attract the innovative financial enterprises such as internet financial and private financial companies. Those measures, amid the current decentralization trend in the office market, will promote the tenant industry restructuring and upgrading in Huangpu. China (Shanghai) Pilot Free Trade Zone (Shanghai FTZ) was officially launched at the end of September. With its impact upon office market limited within the FTZ and adjoining area in the short term, Shanghai FTZ is expected to exalt Shanghai’s status in the global strategy of MNCs and hence stimulate the office demand across the city from a long-term perspective.
RETAIL: DEVELOPERS BRINGING IN NEW BRANDS TO DIFFERENTIATE MALLS FROM COMPETITORS
During the third quarter, two long-awaited malls, iapm by SHKP and Jing’an Kerry Centre by Kerry Properties, launched soft opening with an aggregated retail space of 200,000 sm. Not only well-known international luxury or affordable luxury but also some designer brands set up presences there, an accelerating trend we have observed in the past 1-2 years. In addition, this quarter also saw GNC opening its first China direct sales store in Raffles City, while ODLO and Sutor Mantellassi both opened their first China stores in Grand Gateway 66. Bringing new brands to the city has been employed by more and more landlords to differentiate their malls from competitors. Riding on the robust demand for prime space by international retailers, Shanghai retail market trended up steadily this quarter with the average ground floor rent rising by 1.6% q-o-q to RMB 65.2 psm per day. The openings of new shopping malls in a sense accelerated the adjustment of aged facilities in the catchment. For example, Parkson and Pacific Dept. Store on Huaihai Middle Road both closed business for re-positioning, causing the overall vacancy rate to increase by 1.8 percentage point to 9.2%.
New supply of Shanghai retail property is expected to decrease in the next 12 months. We forecast the overall vacancy rate may decrease with slight rental appreciation in near future.
INDUSTRIAL: STEADY RENTAL GROWTH AND ACTIVE DEMAND OF QUALITY WAREHOUSE MARKET ATTRACTED GREAT INTERESTS FROM INVESTMENT INSTITUTIONS
Shanghai industrial property market maintained stable growth in the third quarter. The average industrial land price increased 1.3% to RMB 1,425 psm and factory rent grew marginally by 0.2% to RMB 32.0 psm per month. In some suburban areas such as Sijing in Songjiang District and Nanqiao in Fengxian District, urban rezoning and redevelopment has generated some intra-region relocation demand from local manufacturers.
The average rent of high standard warehouse increased 2.0% to RMB 36.8 psm per month on the back of stable demand. GLP will develop 75,000 sqm built-to-suit facilities at GLP Park Lingang for BMW Brilliance Automotive's as its largest distribution center, and Grainger leased 15,000 sm in GLP Park Songjiang. The launch of new quality warehouse projects in Fengxian added approximately 50,000 sm to the market, driving up the vacancy rate by 0.4 pts to 13.3% at the meantime. Steady rental growth and active demand of quality warehouse market attracted great interests from investment institutions. The Carlyle Group and The Townsend Group announced to invest US$200 million to acquire partial equity stake in five warehouses owned by Shanghai Yupei Group and to build 12 new warehouses in the next two years. Shanghai Yupei Group will also invest US$200 million, bringing the total equity commitment of the strategic partnership to US$400 million.
188,000 sm of quality warehouses will be launched into market in the next quarter. With most of space to be delivered in Jiading and Songjiang, the undersupplied condition in west Shanghai will be alleviated. Rents are expected to keep the current momentum of steady growth given the sustained demand.
We saw enquiries on industrial properties in the Free Trade Zone increased in recent months, although the setup of Shanghai Free Trade Zone has a lagged effect on industrial rentals because the demand on industrial and logistics facilities greatly relies on actual use of properties, we still expect the FTZ to bring long-term benefit to Shanghai industrial property market.
LUXURY RESIDENTIAL: APRATMENTS PRICED BETWEEN RMB 60,000 AND 80,000 PSM WILL MAINTAIN POPULARITY AMONG HIGH END CONSUMERS WITH UPGRADING DEMAND
Several new luxury apartment projects unveiled with, in total, 742 units acquired presell certificates in this quarter, a quarter provided the largest number of new unites for sale by this year. However, since few of those projects were still engaged in collecting potential buyers and didn’t want to rush into the market, the actual number of new units for sale in this quarter is 643. In this quarter, the sales volume of luxury apartment lowered in July and August, the traditional off-season as well as months with continued high temperature, but rebounded in September. As a result, on one hand, the sales volume in this quarter, 441 units, was fewer than in last quarter; on the other hand, however, it slightly outperformed third quarter of last year with momentum generated by the new projects. In addition, the average price of luxury apartment maintained an upward trend and increased q-o-q by 0.5%.
The Shanghai Aroma Garden, which locates in core area of Huangpu district, was launched in July with asking price of RMB 80,000 psm, and it had sold around 40% of total units by the reporting date. Refer to the good performance of properties such as 8 Park Avenue and Top of City, we expect that the properties with prime location, experienced management and price between RMB 60,000 and 80,000 will maintain its popularity among high end consumers with upgrading demand.
Regarding leasing properties, because the off-season for expatriates’ leasing activity started from September, many landlords tended to adjust (downward) its asking price at the end of this quarter. As a result, the average rent of luxury apartment q-o-q decreased by 1.3% to RMB 147.9 psm per month.
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.
