Shanghai's real estate market has grown strongly in all sectors last year amid robust demographic and economic growth, and the sector can look forward to another generally promising year in 2008 on an optimistic outlook, Colliers International said yesterday in its latest market research.

 

Rents and capital values are expected to grow across all key property sectors in the coming 12 months though possibly at a slower pace, while increasing monetary control and tightening measures by the government might continue to bring uncertainties especially in the investment market, the firm predicted.

 

Office

 

The city's Grade A office market remained vibrant in 2007 amid buoyant business activities, with a notable expansion in demand by tenants in the financial and professional services sectors.

 

In particular, in-house expansion and newly set-up businesses have led to additional requirements for office space, bringing an overall net absorption to around 263,000 square meters.

 

In terms of supply, a total of 227,100 square meters of new Grade A office space were completed during the year. The overall Grade A office vacancy rate fell to a record low of 2.5 percent while the average rent rose 11.3 percent year on year to 9.12 yuan (US$1.24) per square meter per day by the end of fourth quarter as demand surpassed new supplies.

 

Meanwhile, there was keen interest in acquisition for investment purposes, with en bloc or bulk area transactions hitting 560,000 square meters during the year. Citywide, capital value rose by an average 26.6 percent year on year.

 

For 2008, Colliers predicts increasing corporate demand will continue to underpin the market.

 

In contrast to 2007, the city's Grade A office supply will increase notably to 843,300 square meters, with the bulk - 608,900 square meters, or 72 percent - coming from Pudong New Area, followed by Jing'an and Putuo districts in Puxi which each contributes 163,400 and 75,000 square meters.

 

As a result, a small rebound in the vacancy rate is expected in 2008, particularly for that in Pudong. Overall, rents will grow around two percent while some new Grade A office buildings in popular districts such as Jing'an and Lujiazui still able fetch very good rent.

 

In the sales market, investors especially those from overseas will continue to look for investment opportunities in Shanghai, and they will likely spread their search to emerging districts such as Putuo. The capital value of Grade A offices will likely increase by around five percent in 2008.

 

Residential

 

Buying interest for residential properties was strong over the past 12 months, driven by rising demand from both end-users and investors.

 

In the high-end segment, supply was limited in the leasing market, with only 2,060 units completed across the city in 2007.

 

Transactions among the high-end residential properties - including villas, luxury apartments and serviced apartments - stayed active on the back of abundant market liquidity, a growing influx of expatriates, rising affluence of residents and also the wealth effect of the stock market.

 

The average rent of high-end residential properties rose 1.5 percent from a year earlier to 171.2 yuan per square meter per month. The overall vacancy rate, however, stood at a relatively high level of 17.5 percent as some acquisition were more for capital gains rather than rental income.

 

For 2008, the overall residential property market is expected to hold firm, probably fueled by local residents' income growth and upgrading demand while improving transport infrastructure will also lead to housing demand in emerging districts.

 

In the high-end residential leasing market, supply will increase to a total of 3,659 units in 2008. In particular, there will be abundant supply of high-end apartments and serviced apartments, reaching 1,381 and 2,006 units respectively in 2008, while supply of villas remains rather limited, at 272 units.

 

Retail

 

Demand for retail space continued to remain robust last year in both traditional and emerging areas amid strong consumer confidence, rising purchasing power on the back of expanding household income, as well as affluent tourists from the country and abroad.

 

There was abundant supply in 2007 with 225,730 square meters of retail space completed, most in downtown areas. Meanwhile, several shopping malls were massively renovated and they repositioned their tenant mix.

 

On the leasing front, international luxury brands and high-end fashion retailers expanded their portfolio in Shanghai and have been eager to secure large-area retail spaces in prime areas especially on ground floor and in shopping centers.

 

For 2008, the strong momentum will continue.

 

The local supply will likely reach 656,008 square meters with the majority - 439,000 square meters, or 73 percent - located in emerging areas.

 

Industrial

 

A stellar external trade performance and robust manufacturing activities translated into rising demand for industrial parks, particularly in the Zhangjiang and Songjiang submarkets where a nearly zero vacancy rate was recorded by the end of last year. In 2007, 699,200 square meters of new supply were completed, and the average vacancy rate for Shanghai's major industrial parks hit a record low of 2.4 percent. Average rent rose 12.1 percent year on year to 0.87 yuan per square meter per day.

 

For 2008, the overall vacancy rate is expected to be lower for industrial properties amid stronger market demand while the rental value will likely maintain a steady growth, similar to the trend in 2007

 

(Shanghai Daily January 8, 2008)