While rents continue to decline and vacancies climb in Shanghai's office buildings, the sales market is starting to see signs of recovery - backed by rising demand from domestic firms.

The transaction volume of existing offices jumped 70 percent in Shanghai in the second quarter versus the January-to-March period, Century 21 Real Estate, the city's second-largest property brokerage, said yesterday in its latest market research.

"Domestic firms seemed to be more interested in buying their own offices rather than signing leasing contracts over the past few months," said Chen Si, a manager with Century 21's office department. "Many of them made the purchase as they aim to fight against inflation while it could also be wise to buy an office rather than rent one especially from a long-term perspective."

Currently, offices in the downtown Xuhui, Changning, Jing'an and Huangpu districts with a gross floor area of between 100 square meters and 300 square meters are most popular among buyers, the majority of whom bought for their own use, the company said.

"A sluggish demand and an abundant supply will continue to impact negatively the city's office market for some time but the increasingly active role played by domestic companies in the sales market will certainly offer a boost," said George Yeung, head of the office department at DTZ, a major real estate services provider.

For instance, an unidentified local buyer recently acquired an entire office building located at the intersection of Xinzha Road and Wuzhen Road for about 219 million yuan (US$32 million). Many of the office buyers are entrepreneurs from neighboring Jiangsu and Zhejiang provinces who seek to expand their local presence after doing business in Shanghai for years, Yeung added.

Despite a recovering sales market, the office leasing market in Shanghai will continue to face pressures over rent in the coming years due to a large supply, industry analysts said.

About 5 million square meters of office space in the city still remain vacant at the moment while between 600,000 and 800,000 square meters of new office space are due to come into the market annually from now through 2012, according to statistics by Century 21 and DTZ.

(Shanghai Daily July 24, 2009)