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Shanghai Daily,上海日报
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Grade A office rentals in first-tier cities stay healthy

RENTALS at Grade A office buildings in first-tier cities continued to remain healthy in the first half of the year while shopping malls accounted for more than half of China's retail stock, according to Cushman & Wakefield, the world's largest private held real estate consulting service company, in its latest review of the country's commercial property market.

Total Grade A office stock in 20 major Chinese cities monitored by C&W stood at approximately 34 million square meters by the end of June, with 60 percent located in first-tier cities. Beijing and Shanghai accounted for nearly half of the total stock. In terms of new supply, more than 58 million square meters of Grade A office space are scheduled to be released in the market in the next three years, the research showed.

The average net effective rent of Grade A office space in the 20 cities rose to 202 yuan (US$32.70) per square meter per month as of the second quarter. As the most expensive office market in China, Beijing's Grade A net effective rent reached 514 yuan per square meter per month by the end of June, followed by Shanghai's 405 yuan per square meter per month.

The average vacancy rate in the 20 major cities stayed at 11 percent. First-tier cities, especially Beijing and Shanghai, continued to see high rental levels and low vacancy rates. The vacancy rate in some second-tier cities, including Qingdao, Chongqing and Chengdu, however, climbed to more than 30 percent by the end of the second quarter, mainly due to a number of new projects entering the market.

Total retail stock in the 20 cities tracked by C&W exceeded 56 million square meters by the end of the first half. In first-tier cities, shopping malls accounted for more than 70 percent of the total retail stock, with department stores taking a share of less than 22 percent. Shenzhen has nearly 80 percent of its retail stock in shopping malls, the highest among the four first-tier cities. Beijing has the highest proportion of department stores at 24 percent, C&W said.

For second-tier cities, shopping malls account for 58 percent of the total retail stock while department stores take a one-third share. Almost 60 percent of retail stock in Dalian in northern Liaoning Province is department stores, the highest of all second-tier cities. Ningbo in eastern Zhejiang Province has the highest shopping mall percentage at 80 percent.

Retail properties to be released in the 20 cities in the next three years will surpass 38 million square meters, C&W forecasts, with the majority being shopping malls.

The average vacancy rate at shopping malls in first-tier cities stood at nearly 10 percent at the end of June while in some second-tier cities such as Chongqing, Shenyang, Qingdao and Xiamen, the vacancy rate was as high as 15 to 20 percent, mainly because of sluggish leasing at some projects.

China's en bloc transaction market was very active in the first half of this year, with capital sources becoming more diversified.

Besides traditional funds and insurance institutes, more yuan-denominated trusts, family funds and public companies are expected to tap the real estate investment market. Office and retail properties remained the most favored among investors and continued to dominate the overall investment market. Investment in commercial real estate by individual investors is significantly increasing in strata title properties - in which owners own their individual unit and a share of common areas - few capable investment institutions are working on purchasing en bloc properties, especially retail projects.

"Rental disparity is increasing rapidly between single-ownership office properties and strata-title office projects while China's retail market will see further diversification in the future, with shopping malls' market share continuing to rise due to developers' preference to position their new projects as shopping malls so as to minimize the impact from online retailers," according to Sunny Zhang, who is the director of research at Cushman & Wakefield China.



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