A weak office market in Shanghai is offering tenants the chance to strike lucrative leasing deals, allowing companies to save on rent amid a glut of new building supply and a slowing economy. A rising vacancy rate has put pressure on landlords to cut rents to keep existing tenants or attract new clients, with some offering discounts of up to 50%, according to property consultancy JLL. Vacancies in Shanghai stood at 22.9% at the end of 2023, an increase of 1.3 percentage points over September, JLL said. In Puxi the vacancy rate stood at 31.2% in December, compared with 29.7% three months earlier. “A large number of tenants are inspecting different office buildings,” said Jacky Zhu, Senior Director of office leasing advisory at JLL Shanghai. “Some are chasing lucrative leasing deals to reduce rental costs, while others are sniffing out how big a discount they can ask landlords for when negotiating lease renewals.”
The weak office market follows the failure of Shanghai’s economy to live up to expectations amid lackluster investment and sluggish consumer spending, after China’s exit from its stringent zero-Covid policies in the first quarter of 2023. Tang Yunyi, Researcher with the Shanghai Academy of Social Sciences, said that millions of privately owned businesses will have to adjust their business strategies to survive the changing economic environment, because they are facing stiffer competition in the traditional manufacturing and services sectors. “Many of the small companies have yet to recover from the pain they suffered from the pandemic,” she said, adding that Beijing’s relief package – including tax reductions and lower credit rates – might not be enough to bail out some of the troubled firms.
The city’s office market would be more volatile in the first half of 2024, with incentives to spur economic growth potentially triggering a recovery later this year, said JLL’s Zhu. As a result, landlords of aging buildings and projects with high vacancies are willing to offer lower rents and more incentives to attract and retain tenants. Average rents have also dropped sharply across the city due to an oversupply of office space. Last year, 1.58 million square meters – a year-on-year increase of 87% – of new grade-A office space hit the market. As a result, at the end of 2023, rents on average declined 3% from September to CNY7 per square meter per day. These rents were also 6.3% lower than the end of 2022, JLL said.
JLL said that retail leasing in the fourth quarter of 2023 turned out to be steady, a fresh sign of recovery in consumer vigor. Take-up of retail space n Shanghai during this three-month period reached 268,000 square meters, bringing the total for the full year to 730,700 sq m. The average rents in prime areas remained flat at CNY46.6 per sq m per day in December, which represented a 0.2% decline from a year earlier, the South China Morning Post reports.
