Shanghai, 11 July 2017
– The radar report released by Colliers International, an industry-leading global real estate services company, today pointed out that business parks play an important role in Shanghai’s endeavor to build a global science and innovation centre. In recent year, domestic enterprises have become the main new tenants and investors in Shanghai business parks. Internet and IT enterprises account for over 30% of the leases, and Zhangjiang and Jinqiao are the most active submarkets for leasing and investment. In the coming five years, Shanghai business parks market will witness a total new supply of 2.5million sq m, with over 50% located in Zhangjiang and Caohejing. Colliers expects the vacancy rate will remain low and rent will rise driven by strong demand. More and more domestic and international enterprises should find the sector attractive.
Underpinned by Shanghai’s solid economic growth and in particular the rapidly growing services sector, demand for office space in business parks in Shanghai remains robust. According to Colliers’ data, despite the quickly growing total stock, the vacancy rate of Shanghai’s business park market has remained at a low level since 2008 and stood at 15.3% in the second quarter of 2017 with a net absorption of 257 thousand sq m. Since 2012, rental growth has been approximately 5% per year. In Q2 2017, the average rent increased 7% YOY to RMB4.13 per sq m per day.
Colliers has analysed our proprietary data from the past year and found that the biggest proportion of leases came from the Internet and IT industry, accounting for 35% of all leases in 2016. This was followed by manufacturers, accounting for 22%, the finance industry, real estate, and energy enterprises (accounting for 9% respectively). Colliers’ analysis shows that 79% of companies which signed new leases for business parks in 2016 were based in China. Only 21% of these companies were MNCs. By submarket, 32% of the deals in 2016 were in Zhangjiang, reflecting this submarket’s positioning towards science and innovation. This was followed by Jinqiao (24% of leases). 46% of deals were for spaces in the 2,000-3,000 sq m range and 63% of all transactions were for space between 2,000-5,000 sq m.
Michael Wu, Senior Director of Office Services, East China, Colliers, commented: “the most important factors for prospective tenants are rent/sale price, accessibility, and facilities. After these factors were satisfied, building quality and specifications, the absence or presence of an industry cluster, location, and business services (including incubation, legal, and finance services) were also important. The average rent in business parks was 61% lower than that of CBD Grade A offices and 40% lower than that of decentralised Grade A offices as of 2016. Government incentives will further enhance cost savings for tenants.”
Colliers forecasts that in the next five years, approximately 2.5 million sq m of new supply is planned to enter the Shanghai business parks market between 2017 and 2021, with over 50% in Zhangjiang and Caohejing. However, the new projects will have improved building quality and specifications, and more professional operations. In terms of the land title, commercial land will account for 45% of the available land supply from 2017 to 2021 while R&D-titled land will account for 34%.
“We forecasted that demand will remain strong or even increase in the coming years. Several factors lie behind our view. One of the major reasons is the government's call to develop Shanghai into a hub of research and development, as well as finance, both sectors that are active in the business park office market. Another reason is that the pent-up demand in mature submarkets of business parks ought to translate into leasing demand. Third, R&D centres for manufacturers, as well as the back office functions for finance companies should continue to generate strong demand for business park property,” said Timothy Chen, Director of Research, East China, Colliers International.
Colliers expected the vacancy rate to remain low and further decline in the coming three to five years, as the market digests the new supply of the past two to three years. This tightening availability will in turn support rental growth, particularly at desirable business parks with high-quality buildings, mature amenities and convenient access to the city’s metro system. New completions will have higher specifications and improved amenities, supporting buoyant rental growth. The plentiful available space will provide more choices for tenants, and some landlords will become more flexible in rental negotiations.
The en-bloc investment market for Shanghai business parks has been very active in recent years. Colliers found that most transactions (44%) were in Zhangjiang. This was followed by Jinqiao (28%) and Linkong (17%). In respect of investors, 89% of the buyers were domestic while 11% were overseas investors. In terms of the purpose of the acquisition, investment accounted for 61% of deals; only 39% were for self-use.
“The first half of 2017 has witnessed 4 en bloc investment transactions in Shanghai’s business parks market. We forecast that yields will continue to depreciate, while capital value will increase amid sustained rental growth. In the future several years, domestic investors should continue to be the most important, although the performance of the business park market is likely to attract certain knowledgeable overseas investors too,” commented Betty Wong, Colliers’ National Head and Executive Director of Capital Markets and Investment Services in China.
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