Office Market in Shanghai Facing Pressure as Vacancy Rates Reach 10-Year High
The Shanghai office market is experiencing significant pressure as leasing demand remains sluggish and new projects enter the market, leading to a record low in office building rents by the end of 2023. The vacancy rate in the market has also reached a new high in the past ten years, standing at 21.8% at the end of last year.
Data from market institutions indicates that the net absorption and rental levels of the Shanghai office market in 2023 decreased year-on-year, while the vacancy rate continued to rise.
According to market agency DTZ, the vacancy rate of Shanghai’s Grade A office buildings reached 21.8% at the end of 2023, marking a 5.1 percentage point increase from the previous year. The annual net absorption of Grade A office buildings in 2023 was 390,000 square meters, a 38% decrease from the previous year’s levels.
The cautious approach of enterprises towards leasing expansion has led to a decrease in new leasing and leasing expansion transactions, with most of the market transactions being for old tenants renewing their leases. Additionally, the delayed entry of projects into the market during the COVID-19 epidemic, combined with a focus on increasing volume in 2023, has contributed to the increase in supply.
Shanghai’s new supply of Grade A office buildings in 2023 surpassed the average annual new supply level of the past ten years, reaching 1.55 million square meters. This has further added to the stock of office buildings in the city, which continues to increase.
The rental levels of Shanghai’s Grade A office buildings have continued to decline due to the combination of factors such as changes in supply and demand and macroeconomic downturns. Rents dropped to a record low of 7.17 yuan/square meter/day by the end of 2023.
The rise in the office vacancy rate in Shanghai may be attributed to various economic and market issues, including the recession of the economy, the adoption of flexible working methods such as remote working, and cautious corporate expansion due to uncertain market conditions.
The Shanghai office market is facing the challenge of adjustment and adaptation in the wake of these developments, as businesses navigate the changing landscape of office demand and supply in the city.