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Shanghai on track to edge out Hong Kong for office projects

Shanghai on track to edge out Hong Kong for office projects

MONDAY, April 10, 2017

SHANGHAI is expected to have the largest pipeline of prime office projects for completion by 2020, overtaking Hong Kong, Sydney and Tokyo, according to property agency JLL Research.

Shanghai’s central business district is set to receive about 1.1 million square metres of new office space by that year, with several of these projects to be finished this year, after years of supply shortages.
An additional 3.3 million square metres of office development is expected in the Pudong, Hongkou and Minhang districts of China’s financial capital. This will bring total Grade A office space in Shanghai to 11 million square metres by 2020, surpassing Hong Kong as the largest office market in greater China.
“Domestic firms are expected to drive demand for Grade A office space in Shanghai, while more multinationals are anticipated to vie for prime office space to capture a larger slice of the burgeoning Chinese consumer market by 2020,” said Joe Zhou, head of research for China, at JLL. “This high level of forecast demand for office space is likely to absorb the massive supply pipeline over time.”
However, with rising office rents in Shanghai, an increasing number of price-sensitive tenants are shifting to emerging business areas outside the CBD. Fringe districts such as the Railway Station area, the North Bund and Qiantan are especially attractive to tenants due to convenient access to CBD core areas. This is a trend increasingly observed across the Asia-Pacific region, with cities such as Sydney and Mumbai seeing a boom in their secondary business districts. 
JLL data indicates that in China, technology firms drove Grade A net absorption in Shanghai, Beijing, Shenzhen, Guangzhou, and Chengdu. Tech company-driven net absorption levels were higher than for other sectors such as manufacturing in 2016, and technology firms are catching up with the absorption levels of financial services and professional services companies.
“Large volumes of capital funding are enabling more tech companies such as Didi Chuxing and Baidu to upgrade or expand to Grade A office space as they seek to make themselves more attractive to talent,” said Megan Walters, head of research for Asia Pacific at JLL. “This trend is supported on the supply side as well, with all four first-tier cities in China having rapidly growing emerging CBD markets that offer large amounts of new Grade A space, usually at rents that larger tech companies can afford.”
A growing number of technology companies are likely to make co-working spaces, serviced offices, and public spaces an integral part of their real estate portfolio. Companies are increasingly consolidating in fewer core locations, complemented by a network of flexible space. These liquid spaces – such as co-working spaces and serviced offices – promote collaboration, offer employees greater autonomy and provide “an agile and scalable real estate portfolio”, JLL said.
By 2030, on-demand office space is expected to comprise nearly 30 per cent of corporate real estate portfolios.