China Daily (USA) - - SHANGHAI - Wang_y­ing@chi­nadaily.com. cn

Spurred by the city’s re­lent­less ef­forts to trans­form it­self into an in­ter­na­tional trade and fi­nan­cial hub, Shang­hai’s sky­line is con­stantly chang­ing with the ad­di­tion of new build­ings and of­fice spa­ces, but ex­perts aren’t too wor­ried about an over­sup­ply.

De­mand for of­fice leas­ing hit a record high of 1.45 mil­lion square me­ters in 2015, nearly twice that of 2014, and this has in turn in­flated av­er­age rates for grade A of­fices by 1.7 per­cent in the first quar­ter to 11.3 yuan ($1.69) per sq m per day, ac­cord­ing to data com­piled by Cifi Group.

How­ever, an­a­lysts be­lieve that this spike in grade A of­fice rental rates will not con­tinue as ad­di­tional sup­ply is just around the cor­ner.

Ac­cord­ing to data from Sav­ills China, the an­nual sup­ply of Shang­hai’s grade A of­fice spa­ces in the down­town core will reach 1 mil­lion sq m in 2016 and 1.55 mil­lion sq m in 2017, while the stock could surge from 6.4 mil­lion sq m in De­cem­ber 2015 to 8.95 mil­lion sq m and 9.55 mil­lion sq m in 2017 and 2018 re­spec­tively.

An­a­lysts fore­cast that the de­cen­tral­ized ar­eas will ex­pe­ri­ence a sim­i­lar growth — there will be a sup­ply of 1.5 mil­lion sq m and 1.1 mil­lion sq m through­out 2016 and 2017, in turn driv­ing the to­tal stock of grade A of­fice space to 4.46 mil­lion sq m and 4.8 mil­lion sq m in 2017 and 2018 re­spec­tively.

Fur­ther­more, several peerto-peer lend­ing en­ter­prises (P2P) have been forced to move out of pre­mium of­fice build­ings such as Shang­hai Tower af­ter the mu­nic­i­pal govern­ment an­nounced mea­sures to reg­u­late the ram­pant and risky in­dus­try in the first quar­ter of this year.

The new reg­u­la­tions sent a shock wave through the city’s of­fice leas­ing mar­ket as a num­ber of P2P com­pa­nies va­cated their premises, re­sult­ing in a rapid dip in oc­cu­pancy rates across of­fice build­ings in Shang­hai’s core busi­ness districts.

Ac­count­ing for more than 10 per­cent of the fi­nan­cial sec­tor’s of­fice leas­ing de­mand, P2P ten­ants ex­ert con­sid­er­able in­flu­ence in the cen­tral busi­ness district.

Ac­cord­ing to data by Col­liers In­ter­na­tional, the rental prices in Shang­hai’s grade A of­fice mar­ket slid 0.5 per­cent to 10.3 yuan per sq m per day fol­low­ing this ex­o­dus.

Some in­dus­try ex­perts be­lieve this pro­jected abun­dance of of­fice space will have a var­ied im­pact across the city, but may ul­ti­mately en­cour­age the healthy de­vel­op­ment of the mar­ket.

“The ac­tual fa­cil­i­ties, lo­ca­tions as well as ask­ing prices are quite dif­fer­ent from project to project, which means the ef­fec­tive sup­ply is ac­tu­ally much lower than our ex­pec­ta­tions,” said Al­bert Lau, CEO of Sav­ills China.

Zhang Yue, of­fice ex­ec­u­tive direc­tor of CBRE Eastern China’s ad­vi­sory and trans­ac­tion ser­vices, said that “the lim­ited sup­ply of of­fice spa­ces in lo­ca­tions such as West Nan­jing the cost per sq m of grade A of­fices in Shang­hai’s core busi­ness area af­ter the P2P ten­ant ex­o­dus Road, Jing’an, Peo­ple’s Square and Huai­hai Road will be di­luted to ease the soar­ing rents.”

Zhang added that most of the sup­ply can be found in de­cen­tral­ized ar­eas such as Hongqiao CBD, which is ex­pected to pro­vide an ad­di­tional 92,000 sq m of of­fice space this year, and an­other 66,400 sq m in 2018.

The Hongqiao CBD’s va­cancy rate spiked to 21.5 per­cent from Jan­uary to June and could con­tinue to in­crease. Sim­i­larly, the for­mer 2010 Shang­hai Expo site of Qiantan is pro­jected to have an ad­di­tional 155,740 sq m in 2018 alone.

Look­ing ahead and past the next two years, in­dus­try ex­perts said that Shang­hai’s drive to be­come a mul­ti­fac­eted hub for fi­nance, trade, ship­ping, re­search and cul­ture by 2040 will only at­tract more in­di­vid­u­als to the city to work, in turn eas­ing over­sup­ply.

Com­pared to tra­di­tional of­fice zones, newly de­vel­oped ar­eas of­ten have to spend years jostling for the at­ten­tion of po­ten­tial ten­ants due to their un­der­de­vel­oped fa­cil­i­ties, in­fra­struc­ture and trans­porta­tion net­work. But they are not with­out ben­e­fits.

“These de­cen­tral­ized of­fice ar­eas do of­fer a good deal for cor­po­ra­tions look­ing to buy an en­tire build­ing as their re­gional or global head­quar­ters,” said Lau.

“Also, the large sup­ply of of­fice space and the sta­ble rates in these de­cen­tral­ized ar­eas make them the ideal lo­ca­tion for com­pa­nies with man­u­fac­tur­ing di­vi­sions,” he added.

Pro­fes­sional of­fice devel­op­ers for of­fice spa­ces in de­cen­tral­ized ar­eas have been ad­vised to be proac­tive in plan­ning, po­si­tion­ing and mar­ket­ing their of­fice build­ings to po­ten­tial clients.

Zhang sug­gested that devel­op­ers strive to dif­fer­en­ti­ate them­selves from com­peti­tors by of­fer­ing in­cen­tives such as shut­tle bus ser­vices, metro sta­tions, laun­dry rooms, in­build­ing din­ing fa­cil­i­ties as well as gyms.

Due to the ris­ing pop­u­la­tion of star­tups as a re­sult of the city’s drive to be­come an global hub for tech­nol­ogy and in­no­va­tion, many en­trepreneurs have cho­sen to set up their com­pa­nies in more flex­i­ble shared of­fice en­vi­ron­ments in­stead of tra­di­tional of­fice spa­ces.

How­ever, ex­perts are not wor­ried that such a trend will ad­versely im­pact the of­fice rental in­dus­try.

“Be­fore this trend took place, peo­ple were al­ready us­ing co-work­ing spa­ces in the form of busi­ness cen­ters,” said Lau.

“I don’t see how the tra­di­tional of­fice mar­ket will be af­fected by the de­vel­op­ment of the shared of­fice con­cept — they serve to­tally dif­fer­ent clients: the for­mer of­fers ser­vice to ma­ture en­ter­prises, while the lat­ter is tar­geted at young and high-tech busi­ness star­tups who re­quire more flex­i­ble en­vi­ron­ments. Be­sides, star­tups could even­tu­ally be­come a pre­mium client for tra­di­tional of­fice build­ings.”

New of­fice build­ings are con­stantly pop­ping up in Shang­hai, pro­vid­ing an abun­dance of work­ing space for busi­nesses and cre­at­ing fierce com­pe­ti­tion be­tween devel­op­ers.

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