Shanghai in China is expected to have the largest pipeline of prime office completions in Greater China by 2020, overtaking Hong Kong, according to JLL, a global real estate services firm.
Shanghai’s central business district is set to receive approximately 1.1 million square metres of office space by 2020, with several new completions expected in 2017, following years of supply shortage, said Joe Zhou, head of research for the JLL office in Shanghai.
An additional 3.3 million sq m of office development was expected in the decentralised Pudong, Hongkou and Minhang submarkets. This would bring total Grade A office space in Shanghai to 11 million sq m by 2020, surpassing Hong Kong as the largest office market in Greater China.
“Domestic firms are expected to drive demand for Grade A office space in Shanghai, while more multinationals are anticipated to vie for prime office space to capture a larger slice of the burgeoning Chinese consumer market by 2020,” he said.
“This high level of forecast demand for office space is likely to absorb the massive supply pipeline over time.”
However, with rising office rents in Shanghai, an increasing number of price-sensitive tenants are shifting to emerging business areas outside the traditional CBD. Fringe districts such as Railway Station, the North Bund and Qiantan are especially attractive to tenants due to convenient access to CBD core areas.
This trend was increasingly observed across the whole Asia-Pacific region, with cities such as Sydney and Mumbai seeing a boom in their secondary business districts.
Tech sector impetus
JLL data indicates that in China, technology firms drove Grade A net absorption in Shanghai, Beijing, Shenzhen, Guangzhou, and Chengdu.
Tech company-driven net absorption levels were higher than other sectors such as manufacturing in 2016, and tech firms are currently catching up with the absorption levels of financial services and professional services companies.
“Large volumes of capital funding are enabling more tech companies such as Didi Chuxing and Baidu to upgrade or expand to Grade A office space as they seek to make themselves more attractive to talent,” said Megan Walters, head of research for Asia-Pacific at JLL in Singapore.
“This trend is supported on the supply side as well, with all four Tier 1 cities in China having rapidly-growing emerging CBD markets that offer large amounts of new Grade A space, usually at rents that larger tech companies can afford,” she said.
A growing number of tech companies were likely to make co-working spaces, serviced offices and public spaces an integral part of their real estate portfolio.
Companies were increasingly consolidating in fewer core locations, complemented by a network of flexible space. These liquid spaces, such as co-working spaces and serviced offices, promoted collaboration and offered employees greater autonomy, as well as providing an agile and scalable real estate portfolio, she said.
By 2030, on-demand office space was expected to comprise nearly 30% of corporate real estate portfolios.