Savills World Research

Briefing Residential leasing October 2014

Image: Kerry Parkside SUMMARY MNCs remain cautious regarding expansion and recruitment resulting in demand levelling off.

 Overall­ residential rents rose 0.1% 1.6% YoY. City-wide villa occupancy ­ Two new serviced apartments in Q3/2014 to an average of RMB176.2 rates fell 0.2 of a ppt QoQ to 93.4%, are expected to enter the market by per sq m per month, down 0.6% year- down 1.3 ppts YoY. the end of 2014. The projects, both on-year (YoY). City-wide occupancy located in Puxi, will be internationally rates rose 0.2 of a percentage point (ppt) ­ The apartment market showed a branded serviced apartments. quarter-on-quarter (QoQ) to 89.1%, but city-wide increase in rents this quarter remains down up 0.9 of a ppt YoY. rising 0.2% QoQ, up 0.1% YoY. This segment includes strata, luxury ­ Overall serviced apartment rents and serviced apartments. City-wide “Due to the seasonality of the fell 0.4% QoQ to RMB212.1 per sq occupancy rates rose 0.3 of a ppt QoQ m per month. City-wide serviced but remain down 1.3 ppts YoY. villa market the third quarter was apartment occupancy rates fell 0.3 of a active in terms of leases signed ppt QoQ to 86.7%, down 2.0 ppts YoY. ­ Demand is increasingly driven by domestic consumers as many projects and leases expiring.” ­ Overall villa rents fell 0.1% QoQ to record even numbers of expatriate and RMB154.7 per sq m per month, down domestic tenants. James Macdonald, Savills Research

savills.com.cn/research 01 Briefing |Shanghai residential leasing October 2014

Market overview Overall residential rents rose 0.1% strata-title units has lead to a The overall residential leasing sector QoQ but remain down 0.6% YoY at diversification of tenant profiles. remained relatively unchanged this RMB176.2 per sq m per month, while quarter with demand remaining city-wide occupancy rates rose 0.2 of Mass market rents have risen steadily fairly stable. Increased business a ppt QoQ but remain down 0.9 of a over the last two to three years as opportunities in second-tier cities, ppt YoY at 89.1%. individuals unable to get on the however, could mean a shift in property ladder as well as greater demand in terms of both location Serviced apartment numbers of non-local individuals 1 and length of secondments as market overview coming to the city in search for work companies in these cities tend to be No new serviced apartments were turn to the strata-title leasing market. more manufacturing based. These launched this quarter allowing This has had an indirect impact on companies, therefore, have less need the market to continue absorbing the high-end residential strata-title for full-time expatriate employees some of the excess space in new sector. leading to shorter, more project projects launched in the last three based assignments. MNCs also years. An increase in demand from Although city-wide strata-title continue to be cautious regarding domestic consumers and returnees apartment rents fell 0.1% QoQ, expansion and recruitment which compensating for slowing demand the overall trend for strata-title could go some way to explaining from multinational corporation apartments shows upward growth why demand has remained flat. (MNC) expatriates has meant of 0.6% YoY to an average of Additionally, while demand is diversification of tenant profiles RMB158.3 per sq m per month. increasingly driven by domestic with some projects recording Occupancy rates rose 0.4 of ppt consumers, take-up from this sector almost equal numbers of expatriate QoQ were up 1.8 ppts YoY to 88.6% is still not significant enough to affect and domestic tenants, especially city-wide. the overall leasing market. in downtown luxury serviced apartments. Villa market overview The overall villa market was relatively GRAPH 1 Occupancy rates and rents in stable with rents down 0.1% QoQ, Residential leasing market occupancy the broad spectrum of serviced down 1.6% YoY, and occupancy rate and rental index, Q1/2003–Q3/2014 apartments, which includes rates down 0.1 of a ppt YoY. Due to

Rental Index (LHS) Occupancy Rate (RHS) developer, hotel, international brand the seasonality of the villa market the 110 100% and locally operated projects, third quarter was active in terms of

105 95% fell in Q3/2014. However, on the leases signed and expiring. This can back of elevated occupancy rates be attributed to families who follow 100 90% as branded serviced apartments the school year for repatriation and

95 85% become more visible to local relocation. The inflow and outflow of 90 80% business travellers, internationally tenants this year was relatively equal,

Q1/2001 Q1/2001 = 100 85 75% branded serviced apartment thus occupancy rates remained operators recorded moderate QoQ 80 70% relatively unchanged. Leases in the growth. villa market tend to be longer tying 75 65% tenants down for at least one year

70 60% City-wide serviced apartment which allows for occupancy rates to Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 rents were down 0.4% QoQ to an remain fairly stable year round. Source: Savills Research average of RMB212.1 per sq m per month this quarter, down 0.2% YoY. International schools Occupancy rates were down 0.3 of GRAPH 2 a ppt QoQ and were down 2.0 ppts Serviced apartment occupancy rate YoY at 86.7% city-wide. Both Puxi and rental index, Q1/2003–Q3/2014 and serviced apartment occupancy rates fell 0.3 of a ppt Rental index (LHS) Occupancy rate (RHS) 120 100% and 0.1 of a ppt QoQ to 86.1% and 115 95% 87.5% respectively. Wellington College International 110 90% opened its doors to students on 105 85% Strata-title apartment August 25. The school, located at

100 80% market overview No. 1500 Yao Long Road, in Qiantan 95 75% The continued upward trend of in Pudong New Area, has over 300 90 70%

Q1/2001 Q1/2001 = 100 demand for strata title apartments pupils aged 2 to 15 years old. The 85 65% has allowed city-wide occupancy addition of this school will most likely 80 60% rates to rise. The increase in boost future demand in the area and 75 55% domestic demand, alongside the could lead to new projects in the

70 50% availability of larger, more affordable long-term. Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 1 Rents quoted are only for stays at or longer than Source: Savills Research one year.

02 Briefing |Shanghai residential leasing October 2014

It was reported on October 6 that comprising 486 units. The renovation China Travel International Investment period is currently unknown. Hong Kong has confirmed its intention to sell Metropark Service Investment market Apartment Shanghai by equity Serviced apartments typically have a transfer for RMB556.92 million gross yield of approximately 4.0-5.0% English independent school Harrow along with a shareholder loan of though once operational expenses is also expected to open a campus RMB153.1 million via Assets and and taxes are discounted the Net in Shanghai. August 2015 will see Equity Exchange. The project is Operating Income (NOI) yield comes the first pupils admitted, those being located at 103 Dongzhu'anbang Rd out closer to 2.5-3.5%. Historically, the Pre-Prep age group (Years 1-5). in . a number of serviced apartments The subsequent two years will see have been acquired with the mind staggered acceptance of children Amenity Garden (东樱花苑) set of placing the property onto the of all other ages, ending in 2017 strata title sales market where the with Years 11 and 13. Full capacity per sq m price is significantly higher. of the school is envisaged as 1,500 However, a number of projects students. The school is situated in have built up quite significant the newly developed Sunland project tax liabilities (especially the Land in the Waigaoqiao Free Trade Zone. Value Appreciation Tax) which can significant reduce any profit margins Market news that might have existed. Metropark Service Apartment (維景酒店公寓) Amenity Garden, a serviced Many other investments in the apartment located at 200 Linjin serviced apartment space revolve Rd (N) in South Pudong, began a around the idea of spending capital period of floor-by-floor renovations to renovate, sometimes quite in Q3/2013. The project was bought substantially, an older development by Angelo Gordon for US$200 million that is no longer capable of meeting in late 2013. The project, originally GRAPH 3 launched in 1997, boasts 2 buildings Strata-title apartment occupancy rate TABLE 1 and rental index, Q1/2003–Q3/2014 Rental index (LHS) Occupancy rates (RHS) Selected strata-title apartment, serviced apartment 130 100% and villa transactions, Q3/2014 125 95% 120 90% Gross Unit price Lease Lease 115 85% Project name Type Area unit size (RMB per start term (sq m) month) (months) 110 80%

105 75% Kerry Serviced Jing’An 145 43,500 Jul 12 Residences apartment 100 70% Q1/2001 Q1/2001 = 100 Green Villas Villa Jinqiao 420 76,000 Aug 12 95 65% 90 60%

Shimao Riviera Strata-title 85 55% Garden apartment Lujiazui 278 40,000 Jul 12

80 50% Rancho Santa Villa Minhang 260 42,500 Sept 12 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Fe 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 Serviced Source: Savills Research IFC Residence apartment Lujiazui 155 41,000 Aug 12 GRAPH 4 Source: Savills Research Villa occupancy rate and rental index, TABLE 2 Q1/2003–Q3/2014 Strata-title apartment, serviced apartment and villa Rental index (LHS) Occupancy rate (RHS) 100 100% indicators, Q3/2014 95 95% Rent (RMB per sq m per month) Occupancy (%)

90 90% QoQ YoY QoQ YoY

Q3/2014 change change Q3/2014 change change 85 85% (%) (%) (ppts) (ppts) Q1/2001 Q1/2001 = 100 Serviced 80 80% 212.1 -0.4 -0.2 86.7 -0.3 -2.0 apartments 75 75% Strata-title 158.3 -0.1 +0.6 88.6 +0.4 +1.8 apartments

70 70%

Villas 154.7 -0.1 -1.6 93.4 -0.2 -0.5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 14 Source: Savills Research Source: Savills Research

savills.com.cn/research 03 Briefing |Shanghai residential leasing October 2014

the demand of current tenants. the remainder of 2014, adding 169 of accommodation options both in In some cases renovation and an units to the serviced apartment terms of level of service, cost and improvement in asset and lease market. geographical coverage. management will enable rents to All sectors are expected to see relatively increase. The leasing market is expected to stable rent and occupancy levels on see a continuation of many of the a city level basis, though individual Market outlook trends already being played out in projects and locations may outperform, Two new internationally branded the market, namely continued cost most notably the Pudong market on serviced apartments, 79-unit control by MNCs with regards to the back of increasing demand coming Aroma Garden Serviced Suites expatriate housing budgets, shorter from the finance and insurance sectors in Huangpu District and 90-unit term secondment periods, growth in as well as the well positioned serviced Ascott Heng Shan in , demand from the nascent domestic and strata-title apartments located are expected to be launched in tenant segment, a broadening array around these areas. 

Project focus Ascott Heng Shan Shanghai

Ascott Heng Shan Shanghai, located TABLE 3 on Hengshan Road in the heart of Xuhui Ascott Heng Shan Shanghai district, is just one minutes walk away from Location 85 Hengshan Road, Xuhui Hengshan Road Station () providing Owner CapitaLand Limited it with easy accessibility to key business Operator Ascott and shopping areas such as Huaihai No. of units 90 Road (M), and . Ascott Heng Shan 30 minutes’ drive to Hongqiao Shanghai is expected to open in the final Airport Transport links 1 minute walk to Hengshan Road quarter of 2014, offering 90 one- to three- Station (line 1)

bedroom units. Expected Q4/2014 handover date Source: Savills China Research

Definition: Unless otherwise stated, rents refer to one-year rents of 150-sq m two-bedroom units in the mid-zone of residential towers unless unavailable, in which case the standard unit size for the development is used.

Please contact us for further information Savills Research Savills Residential Leasing Savills Residence

James Macdonald Dawn Brandenburg Cindy Xu Neil Harvey Director, China Director Associate Director Director +8621 6391 6688 +8621 6391 5251 +8621 6391 6688 +8621 6391 6688 [email protected] [email protected] [email protected] [email protected]

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