North Bund Table of Contents 04-05

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NEXT2017 Office Market STOP: Report North Bund Table of Contents 04-05

Introduction

Location and Transportation

07-11

Supply

12-14

Demand

15-16

Rents

Sales

18-19

Opportunities and Risks

Connecting People & Property, Perfectly. 2017 Office Market Report NEXT STOP: North Bund

Wenshui Road Introduction In recent years, a number of Inner Ring Road emerging business districts North with development potential have Bund been identified by the Shanghai Middle Ring Road Government. Of these, the North Bund Area, which is located in the southern part of Hongkou District, is one of the most

representative. After a dozen Road Ring Middle years of development, the area Shanghai has been developed into a cluster Railway of shipping and financial services Station businesses from originally just a Lujiazui shipping centre. A 2 Nanjing 0 West As Sinar Mas Centre, The Star Road Harbour and other landmark People’s projects entered the market, there Changfeng Square is an increasing demand for office Zhongshan buildings in the North Bund. Park Huaihai Middle Inner Ring Road New Road In this report, we address the Hongqiao progress, functions and office planning issues in the North Bund Hongqiao Xujiahui Post Area. We explore future development CBD -Expo opportunities and prospects by Inner Ring Road analysing the existing and future Yan’an West Road tenant profiles, office rents and prices, and competitive advantages and strategic positioning of the area over other emerging business districts. Xuhui Binjiang

Figure 1 Middle Ring Road Map of Shanghai’s Major Qiantan Office Markets

Core CBDs A 20

CBDs

Secondary Business Districts

Emerging Business Districts

Source: Knight Frank Research

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2017 Office Market Report NEXT STOP: North Bund

Location and Transportation Supply Covering a total area of 64,088 sqm, the North Bund Area is located at the riverside in the The North Bund Area is one of the most important emerging business south Hongkou District, with the Bund to the west and Lujiazui to the south across the river. districts in the Shanghai office market with two construction booms.

Background and Current Status Both the Dalian Road tunnel and the Cruise Terminal, Tilanqiao and Dalian Xinjian Road tunnel, which connect Road. The planned Line 19 will also The North Bund office market's of a number of Grade B office 2008, up 50% from that in 2005. From Puxi and Pudong, run through the run through the area from north to earliest development dates back buildings. The years 2006-2008 saw 2010 to 2012, with the establishment of North Bund Area. Subway lines 4, south. to 1997, when the Shanghai Bund the completion of several high quality the North Bund Shipping and Financial 10 and 12 all lead to the area. Line LINE International Tower was completed. Grade A office buildings, including Services Cluster, the North Bund office 12 runs through the area with stops After it was designated for shipping BM Tower and Ruifeng International market saw a construction boom, with at Tiantong Road, the International 12 in 2002, there was an inflow of a large Building. Subsequently, office stock a total of 530,000 sqm of office space number of cargo service firms. This increased by approximately 70,000 completed within two years, up 150% runs through the area with stops at Tiantong Road, the International Cruise Terminal, consequently led to the development sqm per year, reaching 630,000 sqm in from the period 2006-2008. Tilanqiao and Dalian Road.

Figure 3 Figure 2 Historical Stock and Future Supply of Office Buildings in the North Bund Area (2005-2020E) Boundaries and Transportation in the North Bund Area 2,500 '000 sqm

The 1st The 2nd Construction Boom Construction Boom North Bund Area Line 4 Line 10 Line 12 Line 19 (proposed)

2,000

Zhoujiazui Road The Establishment of LINE Linping Road Station 1,500 Shipping and Financial Hailun Road Station 12 Services Cluster

Dalian Road Station

Sichuan North Road

Hailun Road

Dalian Road

B Zhoujiazui Road a

o 1,000

a n Siping Road

R Changyang Road

a Tilanqiao Station d Wusong Road LINE

Xizang North Road Sichuan North International Cruise 4 Road Station Terminal Station East Changzhi Road 500

Dalian Road Tunnel

LINE Xinjian Road Tunnel LINE Haining Road 10 1912 0 Tiantong Road Station 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018E 2019E 2020E

Source: Knight Frank Research

Shipping Services Cluster Shipping and Financial+ Services Cluster

Source: Knight Frank Research

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2017 Office Market Report NEXT STOP: North Bund

Figure 4 Distribution Map of Existing and Planned Office Developments

After nearly 20 years of development, an office cluster was formed in Sichuan Road, Wusong Road and the riverside

Baoshan Road Baoshan area. After being positioned as a shipping and finance service cluster in 2011, the existing office buildings were Zhoujiazui Road not able to meet demand for high quality office buildings, so a number of high quality office buildings, including Sinar Mas Centre and Landmark Centre, were constructed. By Q1 2017, total office stock in the North Bund Area reached 1.51 million sqm, with Grade-A office space amounting to 67% of the total.

Dalian Road Hailun Road Haitai International The Star Bund Centre 1 1 Zhoujiazui Road Building Shanghai International Citic Plaza 2 Shipping Service Centre 2 Changyang Road Middle Zone

Sichuan North Road Landmark Centre 3 Shanghai Yifang Building 3 Wusong Road 6 1 SMI Holding Building Sino-American T.&F. 5 4 4 Tower East Changzhi Road 2 12 14 BM Tower SIIC Project 13 16 5 5 Shanghai Bund Haining 1Road 3 15 Plot HK322-01 6 International Tower 6 2 10 11 D a

l i a n SIPG Tower

Xinjian Road Tunnel R 7

5 a

8 T Yuanyang Building

9 u 8

4 7 n

n e

3 l Shanghai International 9 Cruise Terminal Port 4 Authority Building 6 Sinar Mas Centre 10

SCG Building 11

Eastern Harbour 12 International Building

Jiayu Building 13 Existing Supply Shanghai Point 14

Future Supply Gang Yun Buiding 15

Ruifeng International Building 16

Source: Knight Frank Research

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2017 Office Market Report NEXT STOP: North Bund

Landmark Developments

Star Harbour

Co-developed by SIPG (Shanghai International Shipping Service Centre which will be landmark buildings in The office market in the area will reach another construction peak in the coming four years. In 2017-2020, new office supply will reach an average of International Port Group) and has 19 buildings (all to be completed the North Bund Area. The Shanghai Franshion Properties, Star Harbour in 2017). Both projects are for sale; Port International Cruise Terminal consists of the Shanghai Port their target buyers include central and Shanghai International Shipping 257,000sqm per year. International Cruise Terminal, government-owned and large state- Service Centre comprise one of Shanghai International Shipping owned enterprises. Most buyers the major development projects Service Centre, Star Bund Centre, hold these office spaces for self- in the area, with total office space

and three million sqm of Grade-A occupation, and rest will be leased amounting to 34% of total office It is estimated that there will be 1,030,000 sqm of new office space completed in 2017-2020, while office stock will increase to office buildings. The Shanghai Port out. The Star Bund Centre, which is stock. Furthermore, a 130,000-sqm International Cruise Terminal boasts located on Haimen Road, plans to shopping centre in Star Bund Centre 13 buildings, while the Shanghai develop two 263-metre-skyscrapers, is scheduled for completion in 2019. 2,350,000sqm by 2020.

Sinar Mas Centre The SIIC Project, Star Bund Centre Phase II of Star Harbour, and Sino-American T.&F. Tower Another important commercial area sqm, of which office space accounting boutique hotel brand W Hotel and will be launched by 2020. in North Bund is Sinar Mas Centre for 130,000 sqm. The office tower will open a retail mall of 70,900-sqm area. As a landmark building in North phase one in Sinar Mas Centre was in future. At that time, the ancillary Bund, Sinar Mas Centre is comprised completed in Q1 2017, adding a total facilities in Sinar Mas Centre Area office buildings, shopping centre and of 65,000-sqm office space to the and Star Harbour Area can meet a luxury hotel. Sinar Mas Centre has market. In addition, Sinar Mas Centre the requirements of the office and a total GFA of approximately 420,000 has introduced Starwood's luxury residential population in the area. Sinar Mas Centre

The Star Bund Centre (under construction)

Shanghai International Shipping Service Centre Area Sino-American Shanghai International T.&F. Tower Cruise Terminal Area under constuction （） SIIC Project Yifang Building proposed （）

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2017 Office Market Report NEXT STOP: North Bund

Demand In the decade from 2006-2016 office demand continued to drive down vacancy in the North Bund Area.

Background and Current Status

In Q1 2017, two office buildings, the office vacancy rate in the area will rise The major tenants in the North Bund the area. As of Q1 2017, up to 4,500 Bank of China), NCI (New China Life Sinar Mas Centre and Landmark slightly because of upcoming projects, Area are shipping companies and shipping companies were operating in Insurance) and JIC (Jianyin Investment In Q1 2017, the overall vacancy rate in the North large and mid-sized domestic financial the area, for a compound annual rate of China Group). The number of Centre, were completed, adding such as the Star Bund Centre, Bund Area stood at approximately 180,000 sqm of new office space. International Cruise Service Centre companies. Shipping companies of 7.1% over that of 2012. When the financial companies reached 1,200 The overall vacancy rate stood at and Sino-American T.&F. Tower. were the first to set up in the North government proposed establishing a by Q1 2017, which amounted to a approximately 10%. In the future, the Bund Area. Following the completion financial industry cluster, a number compound growth rate of 43% over 10% of the Shanghai International Cruise of PE firms moved into the area, that of 2012. Currently, the North Bund Terminal, shipping companies like including SDIC (State Development Area is a business district dominated Cosco Group, China Shipping Group & Investment Corporation), the by shipping and financial companies. and SIPG successively moved into headquarters of PSBC (Postal Savings Figure 5: Office Supply, Net Absorption and Vacancy Rates in the North Bund Area (2006-2020E)

Figure 6: 800 ‘000 sqm 40 ％ The number and growth rates of shipping and financial enterprises in the North Bund Area

5,000 No. of companies

600 4,500 120 % 30 4,000 ％ 100 % 3,500

3,000 80 % 400 2,500 60 % 2,000 20 ％ 1,500 $ 40 % $ $ 200 1,000 $ $ 20 % 500 $

0 0 % 2012 2013 2014 2015 2016 *Q1 2017

0 10 ％ Shipping companies ( left ) Growth rate of shipping companies ( left )

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017E 2018E 2019E 2020E $ Financial companies ( right ) Growth rate of nancial compaines ( right )

-200 0 Source: Knight Frank Research ％ Note: *refer to figures estimated by Knight Frank

Of ce Supply ( left ) Vacancy Rate ( right ) Net Absorption ( left )

Source: Knight Frank Research

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2017 Office Market Report NEXT STOP: North Bund

Tenant Profile Rents In terms of tenant profile, office SDIC, NCI and ICBC. Although investment grew rapidly, with the Office rents in the North Bund Area have risen demand in the area is in large measure shipping and cargo agents remained proportion increasing threefold over significantly in recent years as a number of large the result of government policies. In the majority, financial institutions such that of 2012, followed by shipping SOEs and financial institutions moved in. 2011, the authorities issued an official as public funds and banks increased and logistics (42%) and cargo agents document to reinforce the financial to 9% of total tenants in 2012. In (16%). cluster concept, resulting in the entry 2017, the number of tenants engaged of large financial institutions, including in wealth management and financial The average office rent reached Grade-A level also narrowed, from RMB7.30 per sqm per day in Q1 2017, RMB4.90 in 2008 to RMB2.50 in Q1 In Q1 2017, the average office rent in the North up 92% over the last decade. The gap 2017. Bund Area reached in Grade A office rents between the North Bund Area and the city-wide RMB Figure 7: Tenant Profile in the North Bund Area (2012 vs 2017) 7.30 per sqm per day.

Figure 8: Average office rental trends by business district (2006-Q1 2017) VS

10% 9% 12% 12 10% RMB/ sqm/ day Overall Secondary business district Emerging business district North Bund

11% 9% 12% 5%

3% 3% 10 2012 2017 8 18% 16%

6 40% 42%

Wealth Management / Shipping and Logistics Public Funds Banks / Financial Investment Others 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Q1 2017 Professional Services Freight Agency Trade Source: Knight Frank Research

Source: Knight Frank Research

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2017 Office Market Report NEXT STOP: North Bund

Office rents in the area rank 6th day. Office rents are expected to among the major business districts continue to increase due to the supply Sales Office rents in the North Bund Area is in Shanghai, 58% of that of the top of high quality office space in the Most office buyers in the North Bund Area are ranking Lujiazui Area. The average coming years. Currently, the asking large central government-owned or state-owned rent in BM Tower is RMB7.50 per sqm rent in Sinar Mas Centre, which was enterprises, and the industry leaders for self- per day and Ruifeng International completed in Q1 2017, ranges between 58% occupation purposes. Building is RMB6.50 per sqm per RMB10 to RMB12 per sqm per day. of that in Lujiazui Area

The North Bund Area is one of the The major tenants are shipping most active areas in the office sales companies, including CSDC (China Figure 9: market. According to Knight Frank, Shipping Development Company), Office Rents in Major Business Districts, Q1 2017 55% of the offices in the area are for Cosco Group and Pacific International sale, including 76% for en-bloc sales Lines. For shipping and logistics and 24% for strata-title sales. Share companies, the North Bund Area is transfer and direct sales are the two the best destination for headquarters. RMB/sqm/day major channels for en-bloc sales. For The current sales price in BM Tower 14 example, Shanghai Port International starts at RMB35,000 per sqm, while 12.5 Cruise Terminal Tower 1 was sold to the price of the last phase of Yaojiang 11.6 12 11.0 Baosteel Resources and Shanghai International Plaza is RMB25,000 per Port International Cruise Terminal sqm. 9.9 10 Tower 2 was sold to Huafu Investment Group through share transfers. China 7.7 8 7.3 Shipping Development and State 7.1 7.0 6.5 Development and Investment Yahua 6 directly purchased Shanghai Port International Cruise Terminal Tower 5 4 and Tower 3. Shanghai Point is now available for en-bloc sales. 2

0 Lujiazui Nanjing Huaihai The Bund Xujiahui North Changfeng Hongqiao Xuhui There are only a few office buildings West Middle Bund CBD Binjiang designated for strata-title sales in the Road Road area. Currently, only three projects – Above the Bund Plaza, Greenland Source: Knight Frank Research North Bund Centre and Yaojiang International Plaza – with unit sizes ranging from 180 to 200 sqm, are available for small investors to purchase for self-use or investment. Most sales projects are situated in the Shanghai Port International Cruise Terminal and Shanghai International Shipping Service Centre area, with the average unit size below 20,000 sqm. In November 2016, State Development and Investment Group acquired an office building in Shanghai International Shipping Service Centre, located at No.168 Yangshupu Road, with a total gross floor area of 64,496 sqm for a total consideration of RMB5.288 billion and a unit price of Office rents are expected to continue to increase due to the supply of high quality over RMB80,000 per sqm.

office space in the coming years.

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2017 Office Market Report NEXT STOP: North Bund

Risks

Opportunities and Risks As the earliest emerging CBD, the development process of the North As compliments to traditional CBDs, new CBDs are under supply pressure and face fierce competition in Bund Area has been relatively slow attracting investment during their development. Apart from North Bund, there are a number of new CBDs After its establishment in 2002, the North Bund Area attracted only shipping emerging, including Qiantan, Hongqiao CBD, Xuhui Binjiang and Changfeng Ecological Business District. and logistics companies, giving rise to a relatively small office market size and a slow development pace. Only after the announcement that a shipping and financial services cluster would be established in the North Bund Area did a number of large-scale financial institutions and financial services enterprises Opportunities move in. It was this diversity of tenants that kickstarted the faster pace of development. Clear positioning The positioning of the North Bund Area is fairly clear: i.e. a shipping service cluster aiming Only a few connecting metro lines so far to develop and encourage shipping and related services. It is also the only emerging Although three Subway lines lead to the area, at present, only Line 12 operates business district that is positioned as a shipping services cluster in Shanghai. To avoid in the North Bund Area. This results in congestion at rush hours for office duplication, the North Bund Area intends to differentiate itself from innovation and culture- workers. themed Xuhui Binjiang and modern services and international trade-themed Hongqiao CBD. Old existing buildings adversely affect the overall developing plan A great number of listed buildings in the North Bund Area cannot be demolished or removed easily, resulting in conflicts in the overall developing Sizable office stock of the area, which negatively affects the overall development plan of the Currently, there is approximately 1.51 million sqm of total office stock in the North Bund North Bund office market. Area. With an additional supply of 840,000 sqm under construction or planning, total office stock is expected to reach 2.35 million sqm by 2020. This is twice the size of the Changfeng EBD (Ecological Business District) and 2.8 times that of the Xuhui Binjiang Business District, topping the list of emerging CBDs in Shanghai. A large-scale office market will attract more multi-floor tenants, bringing economy of scale. Conclusion As one of the emerging business districts, from the shipping trade and related Bund Centre, Shanghai Landmark Centre, the North Bund Area differentiates itself industries. Developers are expected to and Suning Bellagio Hotel Tower. In the Convenient location close to the city centre from other nearby office clusters. Lujiazui look ahead and to develop long-term future, the military pier will also be open in Pudong and the core CBDs in Puxi leasing strategies and improve building to public, as part of a navy theme park to Compared with other emerging CBDs located in the central and outer rings, the North remain the first choice for financial and management to maintain the quality provide an educational base for national Bund Area is the only emerging CBD that lies in the inner ring with easy accessibility. Many consultancy companies. It would be hard of the properties. Tenants and buyers defense and a recreational complex with core CBDs, including Nanjing West Road, Huaihai Middle Road and the Lujiazui Financial to persuade shipping companies to move should consider the positioning and quality cultural and physical activities. Area, are only a 15-minute drive away. from the North Bund Area to Lujiazui or developing potential of the North Bund According to the plans, the North Bund Nanjing West Road and Huaihai Middle Area. Companies in the shipping trade and Area will ensure a staggered competition Road in the city centre. Therefore, the related industries are recommended to market with the Bund, Lujiazui, and Higher rental expectations North Bund Area will continue to attract move to the area in order to benefit from Yangshan Deep Water Harbor, further At the moment, with the support of shipping and financial enterprises in the North Bund more shipping and related industries, industry agglomeration. building on its five major pillars, including Area, the average office rent is RMB7.3 per sqm per day, close to the average rent of all including transportation, trade, insurance, an agglomeration of shipping and finance CBDs. While the average rent of other emerging CBDs, such as Hongqiao CBD, Xuhui finance and leasing. The North Bund Area is still developing, headquarters, a passenger cruise centre, Binjiang and Changfeng EBD, ranges from RMB 6.0 and 7.1 per sqm per day, they still lag but as part of the core construction area in a harbour service centre, and a cultural behind those of the North Bund Area. It is worth noting that the success of the Hongkou District, there have already been and innovation centre. Some 840,000 North Bund Area relies on the efforts built or there are plans to build several sqm of Grade A office space will be built, and collaboration of various parties. landmark buildings, including Shanghai equivalent to the size of an entire CBD in Governments are expected to provide tax International Shipping and Financial Shanghai. incentives to attract intensive investment Services Centre, Sinar Mas Centre, Star

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