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April 21, 2014

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Home » Business » Biz Special

Shanghai’s property market subdued in Q1

By Cherry Cao | April 21, 2014, Monday | Print Edition

SHANGHAI’S real estate market delivered a somewhat subdued first quarter, with mixed fortunes for office landlords, eased interest in residential sales, a pause in investment activity and moderate retail rental growth, according to the most recent market data.

Grade A office space

Demand for Grade A office premises diverged across the Huangpu River.

On the west bank, office rents in Puxi’s central business district fell 0.9 percent from the prior quarter to 9 yuan (US$1.45) per square meter per day. On the east bank, rents rose 1.6 percent to 9.60 yuan per square meter in the CBD of the Pudong New Area, according to global property services provider Jones Lang LaSalle.

“In Pudong, strong demand from domestic companies, particularly financial services and energy firms, continued to chase limited available space, pushing vacancy rates down to 3.5 percent — their lowest level since the fourth quarter of 2007,” said Anny Zhang, head of Pudong markets for Jones Lang LaSalle Shanghai. “Steady rental growth is expected to persist throughout the year. Puxi may also benefit if tight supply in Lujiazui forces Pudong demand to spill across the river.”

In Puxi, most rental activity in the first quarter was related to lease renewals. New leases primarily involved companies seeking larger premises to expand their businesses. Media and retail were the most active tenant segments.

Residential housing

Anecdotal news of price cuts in several less congested cities in China, coupled with tighter credit and government austerity measures, deflated the enthusiasm of prospective homebuyers and led to a drop in sales activity in the first three months.

Purchases of new homes, excluding government-subsidized affordable housing, dropped 44 percent from the previous quarter to about 2.1 million square meters, a 33 percent drop from the same period a year earlier, global real estate advisor Savills said.

Home prices, however, climbed 2.5 percent from the previous quarter to 25,700 yuan (US$4,145) per square meter, a 10.6 percent rise year on year.

“Tighter credit and increasing market uncertainty have pushed some homebuyers to the sidelines until market directions become clearer,” said James Macdonald, head of research at Savills China. “Stricter mortgage conditions are expected to reduce some demand, while the absence of house price targets this year will give local governments greater freedom to introduce more differentiated administrative measures.”

Property investment

Major real estate investment activity slowed in Shanghai in the first quarter following a very active fourth quarter of 2013. The volume of transactions fell, due in part to seasonal factors. Concerns about the strength of the property sector in China also started to impinge on investment decisions.

“That aside, most investors remained confident in the fundamentals of Tier I markets, Shanghai in particular,” said Joe Zhou, head of research for East China operations at Jones Lang LaSalle. “Given the large amount of capital raised but not yet deployed, we believe that transaction volumes will remain strong this year.”

One major investment in the office market and three in hotels were recorded in the first quarter. Calxon Global Tower, a newly developed office property in the Xuhui District, was sold for 1.74 billion yuan to Cura Fund. In the hotel sector, a domestic developer bought the JC Mandarin Hotel on West Nanjing Road for 2.1 billion yuan and announced plans to redevelop the site into office space.

Retail

The retail property market registered moderate growth across the city, amid little change in overall market conditions.

Rents for first-floor shopping mall space in prime areas of the city increased 0.5 percent from the previous quarter to an average 47.4 yuan per square meter per day. Rents in secondary or emerging areas edged up 0.1 percent to an average 18.5 yuan per square meter, Savills data showed.

Vacancy rates at shopping malls in prime locations fell 1 percentage point to 3.1 percent, with malls along Middle Huaihai Road and East Nanjing Road benefiting from the strong emergence of non-fashion retailers.

“Food and beverage and lifestyle retailers made up the majority of large-space leasing as mainstream fashion retailers remained cautious,” said Chester Zhang, associate director of Savills China research. “Rental growth is expected to remain flat to moderate for the remainder of the year, with landlords keen to secure or retain tenants and unwilling to raise rents.”

Landlords will be forced to focus on flexible tenant mixes and digital technologies as growth in online shopping continues to detract from traditional retailing.

BusinessBiz Special


 

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