Q2 2020

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nShanghai Grade-A Off ice Market Report

Office leasing demand from financial institutions has increased significantly

FIGURE 1: Shanghai Grade-A office market indicators[1] [2]

FIGURE 2: Shanghai office development pipeline, 2019-2023

South Jing’an (Nanjing West Road)Pudong (Lujiazui, Zhuyuan, Huamu, Century Avenue,Qiantan, Post-expo)Xuhui (Xujiahui, Xuhui Binjiang, Huaihai Middle Road)Huangpu (People’s Square, Huaihai Middle Road, The Bund)Changning (Zhongshan Park, New Hongqiao, Linkong)Putuo (Changfeng)Hongkou (North Bund, Sichuan North Road)North Jing’an (Daning, Railway Station)Minhang (Hongqiao CBD,Xinzhuang)Yangpu (Wujiaochang, Dalian Road, Yangpu Binjiang)

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

sqm

2019 2020 2021 2022 2023

S ource: Knight Frank Research

2

S h a n g h a i O F F i C E g R a D E -a M a R K E T R E P O R T Q 2 2 0 2 0

in the second quarter(Q2), three new projects totaling 82,286 sqm were completed in Shanghai's grade a office market. Major leasing demand came from financical, biomedicine and professional services sectors. The leasing activities of

O V E R V I E W A N D O U T L O O Kfinancial enterprises and institutions in Pudong have imporved significantly, which was largely due to Pudong's favorable financial business environment.

in the second half of 2020, there will be

2020 q2Vacancy rate

19.1%

2020 q2Rent

8.65RMB/sqm/day

82,286sqm

2020 q2 New supply

more than 2 million sqm of new office space adding to the market. it can be expected that the average vacancy rate will continue to rise but the downward adjustment of market rent will slow down.

-qoq change:

q3 2020:

3.8%qoq change:

q3 2020:

0.1ppsqoq change:

q3 2020:

S ource: Knight Frank Research

[1] Rent refers to average effect ive rent[2] The off ice sample database in q2 has been adjusted and cannot be direct ly compared with the previous quarter ly report f igures

Of the three newly completed projects in Q2, two are located in Puxi and one is located in Pudong. Jing'an Baohua Centre in nanjing West Road area added approximately 31,000 sqm of office space to the market. The Edge located near to Joy City in Jing'an District was also completed this quarter. The project was jointly developed by K. Wah group and Suhewan holdings, with an office space of approximately 14,450 sqm. Pudong huamu submarket recorded the new completion of Kaisa Financial Centre, bringing 37,000 sqm of office space to the market.

in Q2, the average vacancy rate in Shanghai's grade a office market decreased by 0.1 percentage point from the previous quarter to 19.1%. The market net absorption returned to a positive value of 87,300 sqm. The leasing demand in the grade a office market still mainly came from the traditional financial, professional services and biopharmaceutical sectors, which accounted for more than 60%

S U P P LY A N D D E M A N D

S ource: Knight Frank Research

FIGURE 3: Grade-A office supply, net absorption and vacancy rate

S ource: Knight Frank Research

FIGURE 4: Grade-A office rental trendin Q2, the average rent for grade a office market continued to drop by 3.8% from the previous quarter to RMB8.65 per sqm per day. Some office buildings with relatively high vacant space in the core CBDs and emerging business districts attracted tenants by drastically reducing rents. as a result, the average rents in these business districts fell by 1.2% and 4.1% respectively from the previous quarter to RMB 11 per sqm per day and RMB 7.1 per sqm per day. Many landlords gave tenants more subsidies for fitting out and longer rent-free fitting out periods, attracting many tenants with pent-up demand but limited budgets. Through these preferential leasing measures, not only did the landlord ensure the effective absorption of vacant space, but also avoided sharp drops in the rents.

R E N T S

2011 2012 2014 2015 2017 2019 20202018201620132010

0

6

8

10

12

4

2

Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q1Q2 Q3Q4 Q2

RMB/sqm/day

'000 sqm

of the newly signed leases. Domestic securities companies Yongxing Securities and gF Securities leased 6,000 and 5,000 sqm of office space respectively in Taikang insurance Tower.

Biopharmaceutical companies were also active in Q2, particularly Japanese pharmaceutical companies prefered moving to emerging business districts.

3

S h a n g h a i O F F i C E g R a D E -a M a R K E T R E P O R T Q 2 2 0 2 0

District Building Tenant Area(sqm) Type

Little Lujiazui Ruiming Tower AXA Insurance 3,600 New LeaseThe Century

Avenue Taikang Insurance Tower Yongxing Seurities 6,000 New Lease

Little Lujiazui Foxconn Building Hiways Law Firm 5,200 New LeaseLittle Lujiazui Taikang Insurance Tower GF Seurities 5,000 New Lease

Huamu Kaisa Financial CentreCSCEC Shanghai Archi-tectural Design Institute

3,400 New Lease

WujiaochangShanghai HopsonInternational Plaza

Distrii 6,000 New Lease

TABLE 1: Major Grade-A office leasing transactions, Q2 2020

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

2010 2011 2012 2013 2014 2015 2020Q22016 2017 2018 2019 2020Q1

500

1000

1500

2000

2500

3000

0

-500

Supply (left) Net absorption (left) Vacancy Rate (right)

S ource: Knight Frank ResearchNote: a l l t ransact ions are subject to conf i rmat ion

Shanghai Grade-A office inventory, rents and vacancy rates of major business districts

S ource: Knight Frank ResearchNote: uni t for market inventory – 1 ,000 sqm; rents using average effect ive rent at RMB/sqm/day ; VR refers to average vacancy rate. * The off ice sample database in Q2 has been adjusted and cannot be directly compared with the previous quarterly report f igures

4

S h a n g h a i O F F i C E g R a D E -a M a R K E T R E P O R T Q 2 2 0 2 0

in Q2 2020, the investment market was active, with a total of ten office transactions recorded or a total sales over RMB20 billion. The transactions in Q2 showed that there was increasing demand from traditional financial institutions, such as domestic banks, securities and insurance companies, to acquire office assets either for self-occupation or investment purposes.

in May, Bank of Shanghai announced its acquisition of greenland Bund Centre Tower 2 office building and the

I N V E S T M E N T M A R K E Tunderground parking spaces that jointly developed by greenland group, anxin Trust and Shanghai Bund investment group for approximately RMB4.854 billion. The total gross floor area (gFa) is 52,896 sqm, and the final transaction price exceeds RMB90,000 per sqm.

in June, E-commerce brand TST purchased the no.2 office building of Crystal Plaza in core area of Qiantan for RMB1.76 billion or a transacted price of approximately RMB67,000 per sqm. Before

this acquisition, the no. 3 office building in Crystal Plaza was sold to Shaanxi Energy for RMB1.517 billion.

in June, Shanghai great Wall Financial Centre located in Dapuqiao, huangpu District sold for nearly RMB3.1 billion to hong Kong Shanghai alliance holdings Limited and apollo global RE. Shanghai great Wall Financial Centre is a hotel and office complex with a total gFa of 99,600 sqm. amongst, the 51,100-sqm hotel portion is operated by French accorhotels.

S h A N G h A I G R A D E - A O F F I c E M A R K E T D A S h B O A R D ( 2 0 2 0 Q 2 )

The BundPeople’s SquareRailway StationHongqiao CBD*Inventory: 1,348 Rent: 5.5 VR: 41.7%

Zhongshan Park North Bund*Inventory: 409Rent: 7.2VR: 6.8%

Nanjing West RoadInventory: 1,339Rent: 10.8VR: 7.2%

Inventory: 500Rent: 6.7VR: 27.8%

Inventory: 887Rent: 8.5VR: 7.9%

Inventory: 485Rent: 8.9VR: 14.5%

Inventory: 631Rent: 8.0VR: 40.2%

Little LujiazuiQiantanXuhui BinjiangNew Honqiao Xujiahui Century AvenueInventory: 1,211Rent: 7.7VR: 23.5%

Inventory: 494Rent: 7.7 VR: 5.4%

Inventory: 223Rent: 6.5 VR: 9.8%

Inventory: 600Rent: 6.3VR: 28.8%

Huaihai Middle RoadInventory: 953Rent: 9.9VR: 6.2%

Inventory: 2,787Rent: 11.7VR: 8.2%

Inventory: 943Rent: 8.4VR: 17.9%

Core CBDCBDSecondary business districtEmerging business district

20.48million sqm

Total Inventory

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R E C E N T M A R K E T - L E A D I N G R E S E A R C H P U B L I C AT I O N S

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