The supply of office market will break through the historical level in 2021, with about 5 million square meters on the way

In 2021, officemarket in Shanghai is expected to usher in the largest scale supply in history.Although the economy recovers in the second half of 2020 and the demand picksup, the imbalance between supply and demand is hard to return...

OVERALL MARKET

■ Development of the overall office market was significantly affected by the pandemic

due to impact of the pandemic, supplyof office buildings did not reach its peak as expected, and new supplyscheduled to enter the market in 2020 was put on hold, which is highly likelyto lead to a great increase in new supply in the near future.

■ The level of recoveryvaried among segmented markets

as industrial base, favorable policies, infrastructure and otherfactors vary from city to city, cities showed different levels of recovery. Interms of regional markets within cities, some emerging business areassuccessfully attracted quality tenants from core areas with a high level ofcost-effectiveness, and these quality tenants accelerated the growth of these business areas.

■ Periodical buyer's marketpersists

The pandemic furthered the imbalance between supply and demand,rapidly increased supply and demand in recovery keep tipping the balance infavor of buyers.

LEASING MARKET

■ The upward trend of supplyand the great pressure faced by the market will continue

numerous projects scheduled to enter market in 2020 were delayed,which helped to relieved the pressure from sale rate faced by the market andled to a slight decline in vacancy rate. However, the supply in 2021 isexpected to reach a record high, there will a large amount of leasing spaceenter the market both in and outside core areas, and the opening of somelandmark projects is likely to shift focuses from some areas to other areas andreshape the competitive landscape in the market. Areas as new focuses willappear depending on levels of development and maturity in each region, such asDahongqiao, North Bund and West Bund.

■ Rapidly recovered market isnot enough to redress the imbalance between supply and demand

good control of the pandemic and rapid economic recovery fostered arebound in demand for robust growth of TMT and finance, however, it had littleeffect on the increasing imbalance between supply and demand.

■ An overall downward trendin rent rates continued

the increased imbalancebetween supply and demand, along with more fierce market competition,encouraged owners to have more rational expectation of rent rates, so rent risein the overall market will be hard to gain momentum in the short term.

Strata-title sales market

■ Supply increaseddramatically

permits weregranted to several large projects in central districts, which boosted bothtotal supply in the market and the proportion of central districts’ supply.

■ Office market in suburbanareas became more active somewhat

the office marketis still dominated by en-bloc sales, and the overall demand for strata-titleproperties remains at a low level. In the context of a positive real estatemarket prospect, the market of residence-like properties in suburban areasbecame somewhat more active, but due to the limited supply, the market remainedweak.

En-bloc sales market

■ A market in favor of buyerspersists

the increased difficulty in financing and the need to reduce debutmade it more urgent for developers to realize their assets, and the increasedsupply of high-quality properties in the market gave buyers with capital anadvantage over sellers in price negotiations.

■ The market is dominated bydomestic buyers

foreign inventors were fairly inactive in Shanghai’s en-bloc office sales market throughout the year due to outbreakof  the pandemic and increaseduncertainty in international political environment. Domestic buyers, buyerssought properties as premises, financial institutions and insurance companiesin particular, became a dominant player in the market.

■ Changes in structure ofbuyers led to a shift in focus on location and property types

Buyers sought properties aspremises played a bigger role, which greatly increased the demand for detachedproperties with relatively small dimensions and an affordable price.Additionally, industrial buyers’ preference for areas with a great concentration of businesses in their sectorsand favorable policies brought  theattraction of areas with strong policy support and distinctive features, likeDahongqiao, to a new level.

2021 Market outlook

■ Leasing market

The upward trend of theoverall economy lays a foundation for the recovery of market demand. However,in the context of remarkably increased supply and imbalance between supply anddemand, owners will maintain rational expectation of price, and carry on flexibleleasing strategies. In addition, new popular areas will emerge depending on thelevel of development of each region.

■ Strata-title sales market

It will remain hard forstrata-title office sales market  toturn the tide, but increased activity in housing market and  thetightening of policy regulation are expected to create opportunities forresidence-like properties in suburban market. However,  the presence of policy risks will limitinfluence of these properties on the market.

■ En-bloc salesmarket

In light ofconditions facing buyers and sellers, exuberance of the en-bloc sales market atthe end of 2020 will continue in 2021. Rapid recovery of China’s economy will boost confidence of foreign inventors and thusincrease vitality of the market.