Update | Foreign investment is driving demand for prime office space in Shanghai Free-Trade Zone

Foreign investment into the Shanghai Free-Trade Zone (FTZ) is driving unprecedented demand for prime office space.

Ministry of Commerce data shows that from January to September last year, the number of newly registered foreign-invested enterprises in the pilot FTZ rose by 52.6 per cent year-on-year. Savills credits China’s financial reform with attracting foreign companies to establish headquarters
in its most populous city.

“Acquisitions by end-users, in particular, have helped absorb much of
the new supply, keeping vacancy rates in core areas down,” finds the real estate service provider’s latest market report.

Demand in Pudong prime areas continued
to exceed new supply, pushing vacancy rates
to new lows, while non-prime areas in Pudong witnessed strong take-up, according to James Macdonald, director of Savills Shanghai.

“In Puxi, where vacancy rates have increased due to new supply, owners of newer projects have begun offering extended fit-out and rent-free periods
to attract tenants in preparation for the expected supply influx,” he says. In another emerging trend, landlords may demand six to nine months’ rental in advance from tenants in certain industries, especially peer-to-peer lenders, instead of the three months required in a typical leasing agreement.

Shanghai’s core office market received four new projects in the first quarter of this year, adding nearly 140,000 square metres of supply, the Savills report shows. This included two projects in Puxi – Crystal Galleria in the Jing’an district and Star Bund T1 in Hongkou district – and two projects in Pudong: United Overseas Bank Plaza and Poly International Plaza.