Economy

Shanghai office space snapped up by overseas firms

By Wang Ying (China Daily)
Updated: 2011-04-13 14:18

The Shanghai World Financial Center in the Lujiazui financial district in Shanghai. Many multinational companies significantly expanded their office space in Shanghai. [Photo / Bloomberg]

SHANGHAI - Recovering demand for office space from foreign companies has chopped the vacancy rate in Shanghai's central business district's Grade A offices to 5.6 percent, down 2.9 percentage points quarter-on-quarter, analysts said on Tuesday.

The first quarter of this year saw extremely strong demand and no new supply in the nation's financial hub, driving up the occupancy rate and rents, which rose to 8 yuan ($1.22) each square meter (sq m) a day on average, an increase of 6.6 percent over the previous quarter and 24.1 percent year-on-year, according to figures released by Jones Lang LaSalle (JLL), a US-headquartered global real estate service company.

"Multinational occupants continue to implement expansion plans, fueling confidence and pricing power among landlords," said Anthony Couse, managing director of JLL Shanghai.

Driven by a much better business outlook and confidence in China's economy, many multinational companies significantly expanded their office space in Shanghai.

The financial company Morgan Stanley leased a total of 14,000 sq m in the Pudong New Area, while the international accounting firm PricewaterhouseCoopers (PwC) expanded its quarters by about 100 percent, taking an additional 5,400 sq m of space. And manufacturer Mitsubishi Electric Corp expanded its space by about 50 percent and leased about 3,000 sq m in the city, said Alan Li, head of Pudong markets and capital markets with JLL Shanghai.

Along with the heated office market, investment is also booming. The total sales value of en-bloc transactions reached 10.5 billion yuan in Shanghai in the first quarter, up 11.5 percent year-on-year. Different from 2010, when the investment market was dominated by foreign investors, both domestic and foreign investors remain interested in the retail and office sectors because of strong growth prospects this year. In the first three months alone, domestic buyers made up more than 60 percent of the market. The soaring demand for real estate investment in the first-tier cities shows China's mature investment atmosphere, said Zhang Lin, assistant manager of Savills China research.

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China's tallest building, the Shanghai World Finance Center (SWFC), has sold out five floors, showing the strong capital flow of buyers. Unlike the Taiwan property company Tomson Group Ltd, the only publicly identified buyer, the buyers are keeping a low profile and their identities are not publicly known. Sources said they are mostly domestic players.

A report released by real estate services company DTZ Holdings said a total of $104 billion in capital is flowing in the Asia-Pacific region for real estate investment in 2011, up 45 percent from last year. Among investment destinations, China and Australia remain the most popular.

However, in contrast with the generous spending in office leasing and commercial property transactions, the residential housing market is beginning to wither after the central government announced a slew of tightening measures starting in late January. These measures include purchase restrictions, a property tax in Shanghai and Chongqing, and lending restrictions. Statistics from the China Real Estate Index System index showed that Shanghai's housing prices rose by 0.5 percent month-on-month in January and 0.7 percent in February.