Commercial real estate gets domestic power up

Premium office buildings in the Lujiazui financial district in Shanghai. The city accounted for the lion's share of demand for prestigious office buildings, driven by the growing needs of the financial services sector. [Photo provided to China Daily]

Domestic financial and professional service companies continued to push up demand for office buildings in Shanghai's central business district during the third quarter of 2014, and the interest is expected to last through the year, said a report by global real estate services provider Jones Lang LaSalle IP Inc released on Tuesday.

LaSalle research showed that first-tier cities are still the mainstays for Grade-A and Premium Grade-A projects, while some second-tier and smaller cities such as Chongqing and Shenzhen have seen strong demand for office buildings due to robust economic growth and rapid expansion of services industries.

Shanghai accounted for the lion's share of the demand for prestigious office buildings, driven by the growing needs of the financial services sector in China. The sector also was the prime driver for the resurgence in the CBD leasing market.

A State-owned insurance company leased around 5,000 square meters in Shanghai World Financial Center, one of the most prestigious office buildings in the city, during the period.

Demand also strengthened among companies engaged in new types of financial services, the report said.

"We are seeing growing demand from new types of financial service firms, such as Internet finance companies," said Anthony Couse, managing director for Jones Lang LaSalle East China.

A domestic Internet finance company leased 640 sq m in Hong Jia Tower to establish its Shanghai office, while domestic Grandall Law Firm leased two floors in Garden Square in the city.

In Shanghai's Pudong New Area, average rents for Grade-A projects rose 1.7 percent quarter-on-quarter to 10 yuan ($1.63) per sq m per day, while Premium Grade-A rents increased 1.2 percent quarter-on-quarter to 11.4 yuan per sq m per day.

Rents in Premium Grade-A market in the Puxi area continued to decline in the third quarter to 10.1 yuan per sq m per day, a 1.4 percent loss quarter-on-quarter, as landlords of these projects were more willing to offer discounts to keep good-profile tenants in their buildings. Grade A rents in Puxi dropped by 0.99 yuan quarter-on-quarter to 8.8 yuan per sq m per day for similar reasons, the report said.

Strong demand for both investment and self-use purposes of strata-titled office continued to boost transaction volumes during the quarter. By the end of the third quarter, the year-to-date transaction volume saw a growth of 29.4 percent from the same period last year.

"With more deals under negotiation, this year we could see the market achieve its highest annual transaction volume in several years," the JLL report said.

Shenzhen and Chongqing are also among the cities with strong demand for Grade-A office buildings.

Average rents in Shenzhen's Grade-A office leasing market climbed by 1.5 percent quarter-on-quarter to 201 yuan per sq m per month in the third quarter, according to Cushman & Wakefield, a private real estate services company.