According to research from international property consultant Knight Frank, in the third quarter of 2011 the Shanghai residential market continued to feel the impact of new restriction policies while the office and retail markets benefited from multinational organisations and retailers entering the marketing and driving up rental prices.
In the residential market, new policies unveiled by the Mainland Chinese government affected the middle-upper sector of the market in Shanghai, resulting in a decrease of 16% in transaction volume compared with the previous quarter. The “Restriction on Home Purchase” policy played a significant role in dampening market demand. However, developers did not reduce their prices significantly to boost weakening demand, resulting in a drop in transaction volumes but firm asking prices. Despite a fall in residential sales, the luxury leasing market continued to benefit from the constant growth of multinationals, showing no signs of ebbing.
As the residential sector brings on a wait-and-see attitude, the office and retail sectors are expanding beyond the traditional CBD and high-street shopping areas to some of the city’s more decentralised areas. Zhuyuan, a financial hub developing to the southeast of Lujiazui, saw the launch of two new office buildings – Lujiazui Fund Tower and Lujiazui Investment Tower – that added approximately 66,000 sq m of new office space to Shanghai’s stock. Shanghai’s Director of Research Regina Yang says, “New development areas, such as Zhuyuan and Hongqiao Business Area, suggest that the future supply of office space will no longer be confined to Shanghai’s CBD area. With more Grade-A offices emerging in decentralised areas, accessible by an extensive and growing metro system, offices in these non-core areas will see more high-profile tenants and increasing transactions.” In the meantime, offices in CBD areas are being taken up quickly, with the vacancy rate dropping to 4.7%, a 10.4% drop from last year.
The retail market is seeing similar activity as demand grows and large retailers start to look towards suburban areas to capture consumers. Quarter three saw the opening of three new shopping malls, the upgrade of existing shopping areas and the expansion of large-scale retailers outside of traditional shopping areas. Two of the three new shopping malls this quarter, Xinzhuang Cloud Nine Shopping Centre and Kerry Parkside Mall, are located beyond the city centre, yet still attracted international tenants. With all signs pointing to a strong market, retailers continued to expand in Shanghai. Apple opened its third flagship store on Nanjing East Road just as GAP opened its third and fourth stores in suburban areas, one in Sky Mall and one in Kerry Parkside.
"With the Christmas and New Year holidays approaching, we have a positive outlook for the retail sector,” Ms Yang concludes. “Likewise, the steady growth of the China and Shanghai economy will secure strong demand for Grade-A office space. We will see more slowdown in in the residential market due to restrictions on both buyers and sellers, but a significant drop is not expected on account of strong purchasing power."
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