The municipality's property market is expected to maintain strong momentum this year, according to a report by international real estate consultancy Jones Lang LaSalle.

Demand for office and retail space remained robust last year, with rents soaring and vacancy rates plummeting, the report showed.

The vacancy rate for the municipality's office buildings has dropped significantly recently, slumping from 6.22 percent in the third quarter of last year to a record low of 2.63 percent in the fourth quarter, while the average rent has risen steadily from 95 cents per square meter per day to 99 cents during the same period.

Rental costs are expected to soar further this year, driven up by insufficient new supply, the property firm said.

The vacancy rate for retail space declined from 11.27 percent in the third quarter of last year to 8.99 percent in the fourth quarter, with rents increasing from $4.65 per square meter per day to $4.90 over the same period, according to the report.

"The positive sentiment continues in the new year and 2007 is set to be another solid year for China's real estate market," the report said.

Due to restrictions on foreign individual homebuyers, the high-end residential segment, a considerable portion of which targets overseas buyers, is expected to see a downturn in terms of transaction volume this year, said Kenny Ho, head of research at Jones Lang LaSalle's Shanghai office.

According to rules released last July, only foreigners who have lived in China for at least one year are allowed to buy apartments for self-use, a move designed to curb rising property prices.

"The transaction volume of luxury and high-end housing projects, both new and second-hand, is likely to shrink this year," said Ho.

"But their price is not expected to drop and will remain stable as long as most of the buyers and investors remain optimistic about the long-term prospects and capital is adequate in the market," he said.

The vacancy rate for luxury and high-end residential property in Shanghai reached 17 percent in the fourth quarter last year and is projected to rise to 25 percent this year, according to property consultancy Colliers International.

(China Daily January 10, 2007)