Office leasing demand from financial institutions has increased significantly

Shanghai Grade-A

Office Market Report knightfrank.com.cn Q2 2020 OFFICE GRADE-A MARKET REPORT Q2 2020

OVERVIEW AND OUTLOOK In the second quarter(Q2), three new financial enterprises and institutions in more than 2 million sqm of new office space projects totaling 82,286 sqm were have imporved significantly, which adding to the market. It can be expected completed in Shanghai's Grade A office was largely due to Pudong's favorable that the average vacancy rate will continue market. Major leasing demand came from financial business environment. to rise but the downward adjustment of financical, biomedicine and professional market rent will slow down. services sectors. The leasing activities of In the second half of 2020, there will be

FIGURE 1: Shanghai Grade-A office market indicators[1] [2]

2020 q2 2020 Q2 2020 q2 New supply Rent Vacancy rate 82,286 8.65 19.1% sqm RMB/sqm/day

QoQ change: - QoQ change: 3.8% QoQ change: 0.1pps

Q3 2020: Q3 2020: Q3 2020:

Source: Knight Frank Research [1] Rent refers to average effective rent [2] The office sample database in Q2 has been adjusted and cannot be directly compared with the previous quarterly report figures

FIGURE 2: Shanghai office development pipeline, 2019-2023 sqm South Jing’an (Nanjing West Road) 2,500,000 Pudong (, Zhuyuan, Huamu, , Qiantan, Post-expo) Xuhui (, Xuhui Binjiang, Huaihai Middle Road) 2,000,000 Huangpu (People’s Square, Huaihai Middle Road, ) Changning (Zhongshan Park, New Hongqiao, Linkong) Putuo (Changfeng) 1,500,000 Hongkou (North Bund, Sichuan North Road) North Jing’an (Daning, Railway Station) Minhang (Hongqiao CBD,Xinzhuang) 1,000,000 Yangpu (Wujiaochang, Dalian Road, Yangpu Binjiang)

500,000

0 2019 2020 2021 2022 2023

Source: Knight Frank Research

2 Shanghai OFFICE GRADE-A MARKET REPORT Q2 2020

SUPPLY AND DEMAND Of the three newly completed projects in Q2, two are located in and one is located in FIGURE 3: Grade-A office supply, net absorption and vacancy rate Pudong. Jing'an Baohua Centre in Nanjing West Road area added approximately 31,000 sqm '000 sqm Supply (left) Net absorption (left) Vacancy Rate (right) of office space to the market. The Edge located 3000 20% near to Joy City in Jing'an District was also 18% completed this quarter. The project was jointly 2500 16% developed by K. Wah Group and Suhewan 2000 14% Holdings, with an office space of approximately 12% 14,450 sqm. Pudong Huamu submarket 1500 recorded the new completion of Kaisa Financial 10% Centre, bringing 37,000 sqm of office space to 1000 8% the market. 500 6% In Q2, the average vacancy rate in Shanghai's 4% Grade A office market decreased by 0.1 0 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020Q1 2020Q2 2% percentage point from the previous quarter -500 0% to 19.1%. The market net absorption returned Source: Knight Frank Research to a positive value of 87,300 sqm. The leasing demand in the Grade A office market still of the newly signed leases. Domestic securities Biopharmaceutical companies were also active mainly came from the traditional financial, companies Yongxing Securities and GF in Q2, particularly Japanese pharmaceutical professional services and biopharmaceutical Securities leased 6,000 and 5,000 sqm of office companies prefered moving to emerging sectors, which accounted for more than 60% space respectively in Taikang Insurance Tower. business districts.

RENTS In Q2, the average rent for Grade A office market continued to drop by 3.8% from the FIGURE 4: Grade-A office rental trend previous quarter to RMB8.65 per sqm per RMB/sqm/day day. Some office buildings with relatively high vacant space in the core CBDs and 12 emerging business districts attracted tenants by drastically reducing rents. As a 10 result, the average rents in these business districts fell by 1.2% and 4.1% respectively 8 from the previous quarter to RMB 11 per sqm per day and RMB 7.1 per sqm per 6 day. Many landlords gave tenants more subsidies for fitting out and longer rent- 4 free fitting out periods, attracting many tenants with pent-up demand but limited 2 budgets. Through these preferential leasing 0 measures, not only did the landlord ensure Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1 Q2 Q3Q4 Q1Q2 the effective absorption of vacant space, but 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 also avoided sharp drops in the rents. Source: Knight Frank Research

TABLE 1: Major Grade-A office leasing transactions, Q2 2020 Area District Building Tenant Type (sqm) Little Lujiazui Ruiming Tower AXA Insurance 3,600 New Lease The Century Taikang Insurance Tower Yongxing Seurities Avenue 6,000 New Lease Little Lujiazui Foxconn Building Hiways Law Firm 5,200 New Lease Little Lujiazui Taikang Insurance Tower GF Seurities 5,000 New Lease CSCEC Shanghai Archi- Huamu Kaisa Financial Centre 3,400 New Lease tectural Design Institute Shanghai Hopson Wujiaochang Distrii 6,000 New Lease International Plaza Source: Knight Frank Research Note: all transactions are subject to confirmation

3 Shanghai OFFICE GRADE-A MARKET REPORT Q2 2020

INVESTMENT MARKET In Q2 2020, the investment market was underground parking spaces that jointly this acquisition, the No. 3 office building in active, with a total of ten office transactions developed by Greenland Group, Anxin Crystal Plaza was sold to Shaanxi Energy for recorded or a total sales over RMB20 billion. Trust and Shanghai Bund Investment RMB1.517 billion. The transactions in Q2 showed that there Group for approximately RMB4.854 billion. was increasing demand from traditional The total gross floor area (GFA) is 52,896 In June, Shanghai Great Wall Financial financial institutions, such as domestic sqm, and the final transaction price exceeds Centre located in Dapuqiao, Huangpu banks, securities and insurance companies, RMB90,000 per sqm. District sold for nearly RMB3.1 billion to to acquire office assets either for self- Hong Kong Shanghai Alliance Holdings occupation or investment purposes. In June, E-commerce brand TST Limited and Apollo Global RE. Shanghai purchased the No.2 office building of Great Wall Financial Centre is a hotel and In May, Bank of Shanghai announced Crystal Plaza in core area of Qiantan for office complex with a total GFA of 99,600 its acquisition of Greenland Bund RMB1.76 billion or a transacted price of sqm. Amongst, the 51,100-sqm hotel Centre Tower 2 office building and the approximately RMB67,000 per sqm. Before portion is operated by French AccorHotels.

ShanghaI GRADE-A office market dashboard (2020 Q2)

Shanghai Grade-A office inventory, rents and vacancy rates of major business districts Hongqiao CBD* Zhongshan Park Nanjing West Road Railway Station People’s Square The Bund North Bund* Inventory: 1,348 Inventory: 409 Inventory: 1,339 Inventory: 500 Inventory: 887 Inventory: 485 Inventory: 631 Rent: 5.5 Rent: 7.2 Rent: 10.8 Rent: 6.7 Rent: 8.5 Rent: 8.9 Rent: 8.0 VR: 41.7% VR: 6.8% VR: 7.2% VR: 27.8% VR: 7.9% VR: 14.5% VR: 40.2%

Core CBD CBD Secondary business district Emerging business district

Total Inventory 20.48 million sqm

New Honqiao Xujiahui Xuhui Binjiang Qiantan Huaihai Middle Road Little Lujiazui Century Avenue Inventory: 1,211 Inventory: 494 Inventory: 223 Inventory: 600 Inventory: 953 Inventory: 2,787 Inventory: 943 Rent: 7.7 Rent: 7.7 Rent: 6.5 Rent: 6.3 Rent: 9.9 Rent: 11.7 Rent: 8.4 VR: 23.5% VR: 5.4% VR: 9.8% VR: 28.8% VR: 6.2% VR: 8.2% VR: 17.9% Source: Knight Frank Research Note: unit for market inventory – 1,000 sqm; rents using average effective rent at RMB/sqm/day; VR refers to average vacancy rate. * The office sample database in Q2 has been adjusted and cannot be directly compared with the previous quarterly report figures

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Research & Consultancy Shanghai Office Services

Timothy Chen Regina Yang Jonathan Rideout Senior Director, Director, Head of Research & Consultancy, Head of Office Services, Head of Research & Consultancy, Shanghai & Beijing Shanghai +86 21 6032 1769 +86 21 6032 1728 +86 21 6032 1713 [email protected] [email protected] [email protected]

Martin Wong Mars Yin Associate Director, Senior Manager Research & Consultancy, Greater China Research & Consultancy, Shanghai +852 2846 7184 +86 21 6032 1730 [email protected] [email protected]

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