The office market in Shanghai is undergoing a major transformation. This year is expected to see the completion of 15 new projects in the ‘core’ market, adding 9.5 million sq ft of space, and 22 projects in the ‘decentralised’ market, adding a further 17.4 million sq ft of new supply.
This represents levels of supply never seen before, and is likely to put downward pressure on rents, especially in the core market as cost-sensitive occupiers are drawn to projects in outer areas.
Shanghai is using large-scale infrastructure investment to unlock these decentralised business districts as it strives to meet the demands of a rapidly expanding population and economy.
Hongqiao Transportation Hub is one example, anchored by Shanghai Hongqiao Railway Station, one of Shanghai’s four main railway stations, and the largest in Asia by floor space. The hub ties together the city’s domestic airport with the main high-speed railway terminal, a long-distance coach terminal and two existing metro lines.
The first two office developments launched here in 2014, aiming to attract companies from industries most crucial to the development of Shanghai and the Yangtze River Delta area, spreading the economic benefits beyond the city itself.
In the short term these moves will slow rental growth further and may mean a cheaper ride for occupiers. They are designed in anticipation of and to ensure future long-term growth, so should still be of interest to far-sighted investors, despite low yields and slow income growth in the near term.