Savills Q2/2018 Shanghai Property Market Overview

11 July 2018

Shanghai Grade A office market

Core market

Five new project were launched onto the core office market in Q2/2018, adding 426,300 sq m of new office space and bringing the core Grade A office stock to 8.7 million sq m.

  • Harbour City Ph3, Lujiazui, Pudong New Area
  • Raffles City Changning T1, Hongqiao, Changning District
  • Haoyuan project, Huangpu District
  • Lujiazui Financial Holding Plaza, Zhuyuan, Pudong New Area
  • Pudong Financial Square, Zhuyuan, Pudong New Area

Net take-up picked up, totalling 369,500 sq m in Q2/2018, up 420% compared to Q1/2017. The growth in demand was largely driven by pre-commitments in new supply and strong take-up in Puxi non-prime areas.

Strong market absorption offset the pressure from large supply, resulting in stable vacancy rates at 12.4%, though they remained up 2.2 percentage points (ppts) year-on-year (YoY).

Core market rents remained flat on an index basis in Q2/2018 with rents currently averaging RMB9.0 per sq m per day.

Decentralized market

Despite no new supply recorded in Q1/2018, the second quarter received as much as 563,400 sq m of new office space in the decentralized market with five new projects being handed over. Total decentralized stock, as a result, was pushed up to 4.1 million sq m by the end of Q2/2018.

Due to the large supply, vacancy rates in decentralised areas continued to rise 1.7 ppts in Q2/2018 to 35.5%, the highest level over the last three years. Rents remained flat on an index basis averaging RMB5.8 per sq m per day.


A total of nearly 1.4 million sq m of Grade A office space (including core and decentralized locations) is scheduled to launch in 2H/2018. Vacancy rates, as a result, are forecasted to rise further.

New economy industries including Internet+, big data and other technologies will continue to generate new demand for office space.

The second half of 2018 will remain tough for landlords, especially those of older projects which are faced with increasing competition from new supply and as such are now more open to discussion during renewal negotiation with existing tenants in an attempt to defend occupancy rates. Large space occupiers, in particular, have more room to bargain on their rental prices.

Future competition among office projects will mainly focus on building quality and services provided by landlords.


Shanghai retail market

Retail sales grew by 7.3% year-on-year (YoY) in the first five months of 2018, 0.9 of a percentage point (ppt) lower than the same period in 2017.

Three new projects launched onto the market in the second quarter, contributing a total retail GFA of 314,380 sq m, while two projects completed renovation and upgrading.

Overall rent on first floor space increased 0.4% quarter-on-quarter (QoQ) to RMB27.9 per sq m per day.

Vacancy rates increased by 1.0 of a ppt in Q2/2018 to 6.2% in prime retail areas, while they fell by 0.2 of a ppt to 6.6% in non-prime retail areas.

High-end supermarkets innovated, experimented with smart stores, adopted new brand incubation and expanded their business scope.


New retail continues to gain momentum as the lines between online and offline enterprises carry on blurring. New innovations are expected to stimulate both leasing and consumption demand.

Overall rent and vacancy rates are expected to be adversely affected by the launch of several new projects in the second half of the year.


Shanghai residential leasing market

Middle House Residences (102 units) and Marriot Jinqiao (73 units) were launched onto the serviced apartment market in Q2/2018.

Citywide rents remained virtually flat declining just 0.6% QoQ to an average RMB198.6 psm pmth but remaining up 0.8% YoY. Serviced apartment rents fell 1.5% QoQ to RMB235.1 psm pmth while strata-title apartment rents increased 0.1% QoQ to RMB191.6 psm pmth, and villa rents increased 0.1% QoQ to RMB158.9 psm pmth

Overall vacancy rates fell 1.5 ppts QoQ. Serviced apartments lead the declines with 1.8 ppts QoQ and strata-title and villas declined 1.1 ppts and 1.6 ppts QoQ, respectively. Serviced apartments fell to 17.3%, strata-title apartments fell to 14.1% and villas fell to 6.6%.


Sincere (协信) is launching 494 units onto the Shanghai market in Q3/2018 with one in Changning (Shama Changfeng with 362 units) and one in Minhang (Shama Hongqiao with 132 units).

Sincere’s units, combined with the 101 units in Hyatt Place located in the Hongqiao Transportation hub in Q1/2018, represent a significant increase in supply to the serviced apartment market in western Puxi. Much of this new supply seems to tapping into opportunities presented by the growth of the office market and maturing business environment in Changning and Minhang.

Pudong has seen relatively little service apartment supply in 2018 (only Jinqiao Marriot with 73 units), so vacancy rates should decrease as customers have fewer new options for serviced apartments.


Shanghai residential sales market

First-hand mass commodity residential market

New commodity residential supply rebounded by 110.5% in Q2/2018 to 1.42 million sq m, but remains down 13.6% YoY.

First-hand commodity residential transaction volumes increased by 21.4%, totalling 1.45 million sq m, down 30.1% YoY.

Average transaction prices rebounded by 12.9% QoQ to RMB49,800 per sq m, and also embraced an increase of 4.8% YoY.

First-hand high-end apartment market

First-hand high-end apartment supply totalled 301,400 sq m in Q2/2018. About three-quarters of it came from the new batches of existing projects. Two brand new projects were launched into the market in April, including Qiantan Ocean One located in Pudong Sanlin, and Cathay Courtyard located in Yangpu.

First-hand high-end apartment recorded a sharp increase in transaction volumes, rising 118.9% from the previous quarter, totalling 141,800 sq m in Q2/2018, but still down 17.8% YoY.

First-hand high-end apartment transaction prices fell about 2.3% on an index basis in Q2/2018 to an average of RMB90,690 per sq m.

Land market – residential zoned

Two pure residential land plots were transacted in Q2/2018, with a total GFA of 161,000 sq m. One of the plots located near Wanda Baoshan was obtained by Dahua Real Estate Group for an accommodation value of RMB30,200 per sq m; the other plot located in Jiading was bought by a wholly-owned subsidiary of Poly Real Estate Group for an accommodation value of RMB31,500 per sq m. Both plots were sold at their reserve pricing.

A residential for-lease land plot in New Jiangwan Community was sold in Q2/2018. The plot covers a buildable area of 81,500 sq m, with a reverse price of RMB8,000 per sq m.

New Policies

Shanghai is one of a number of cities around China that have launched new policies to control speculative investment in real estate via shell companies. The new policy requires that enterprises purchasing commodity residential units be established for at least five years, have paid at least RMB1 million in taxes within the municipality and employee at least ten staff.

Shanghai also regulated that all rental leases should be recorded online, starting from the first of July. In the meantime, the city also officially launched its public rental service platform after a three-month test operation.


The first-hand mass commodity residential market is anticipated to record a pickup in activity in the remainder of the year, as another batch of projects look close to receiving their pre-sales licences. Nevertheless, the policy environment remains strict and could continue to suppress demand despite new supply.

Residential land supply is expected to continue to grow in the third quarter as a total of ten pure residential plots are waiting to launch into the market. The second half of the year is also expected to see continued release of for-lease residential land plots. Despite continued confidence in the long term market competition for new plots and subsequently premiums are expected to remain moderate given the stricter financing guidelines and tighter monetary policy.

Economic headwinds may force the government to relax monetary policy and some of the restriction of the property market in the short term to encourage growth, however there are no signs of this at the moment.


Shanghai investment market

The investment market saw a sustained slowdown in transaction volumes as a result of the tighter monetary policy as only a total of RMB19.6 billion deals were concluded in 1H/2018, around half of that in 1H/2017.

More transactions of decentralised office properties with relatively low price per unit were recorded in the second quarter. Potential buyers and sellers of core assets continue to have a difference of opinion on the prospects of the market and what market values currently are.

Underperforming retail properties located in prime locations with upgrade and conversion potential remained popular among investors especially foreign ones. Five retail properties that fall in this category were transacted this quarter with a total consideration of RMB4.4 billion.

HNA offloaded another project in the second quarter with the sale of a mixed-use project that is currently under construction to a local developer Fusheng Group for RMB2.9 billion. The projects comprises a pair of 20-storey residential towers and a 24-floor office building and is located in the Qiantan area.

Insurance funds have been given the green light to investment in for-leasing projects in large and medium-sized cities and areas that see net population inflows according to an online statement issued by China Banking and Insurance Regulatory Commission. Insurance funds can invest in the form of both equity and debt.


Highly capitalized investors, such as insurance companies, SOEs and pension funds are expected to take up more transactions in the market in the second half of the year as financing remains a challenge for developers and domestic funds.

Developments tied to the sharing economy, such as co-working and co-living is expected to continue to draw interest from investors. PEs and VCs continue to back these companies in the uncompromising bid to claim market share.

Given limited supply and growing demand the logistics market will remain attractive to many investors. Yields of such investments are forecast to continue to compress as value growth continues to exceed rental growth.


Key Contacts

Olivia Shao

Olivia Shao

Marketing & Communications, Savills China

Savills Shanghai

+8621 6391 6688 Ext.8893