Due to the launch of new projects with rents higher than the city average, the average business park rent rose slightly to RMB4.25 per sqm per day, a QoQ increase of 0.3%. Given the external economic uncertainty, companies became more cautious about business expansion. The slow absorption of the inventory of new office buildings in past two years led to an increased vacancy rate. In Q1, the overall vacancy rate of business parks increased to 16.4%, up 0.2 percentage point from the previous quarter.
Regina Yang, Director and Head of Research & Consultancy at Knight Frank Shanghai & Beijing, says, “It is expected that the recently issued tax cuts in 2019 may reduce the operational costs of the beneficiary enterprises and help to enhance their competitiveness by investing the saved resources to R&D and business developments, which generate more demand for business park space. We believe that these new demands will relieve the pressure on the high inventory caused by the huge amount of new supply. Looking forward to the second half of 2019, over 900,000 sqm of business park space is scheduled for completion in Shanghai, of which Zhangjiang accounts for 40% total new supply.”
In early 2019, the Chinese government introduced a number of tax incentives to help enterprises reduce their tax burdens. The total tax reduction in the first quarter of 2019 has been much higher than that of the whole year of 2018. In particular, the scale of tax reduction under VAT reduction policy alone is equivalent to the total amount of tax reductions in 2018.
The new policy of Inclusive Tax Reduction for Small and Micro Enterprises, released by the Ministry of Finance on 17 January, has largely relaxed the standards for the classification of small and micro enterprises and greatly increased the preferential income tax for these companies, hence benefited more tech start-ups.
For the business park market, these tax relief policies have reduced the tax burden for corporates in the business parks, increased corporate profits and promoted the healthy development of these enterprises. It may further boost the leasing demand generated from the requirements of business expansion and the establishment of new R&D centres.
Peter Zhang, Senior Director and Head of Office & Industrial Services at Knight Frank Shanghai, says, “The average rent in Zhangjiang was approximately RMB4.75 per sqm per day, whilst that in Jinqiao was 3.58 per sqm per day. The average rent in Caohejing, one of the most developed submarkets in Shanghai, remained at RMB4.85 per sqm per day. Small scientific research companies were active in Caohejing Pujiang, pushing the average rent to RMB2.72 per sqm per day, a QoQ increase of 1.1%. In the short term, the new VAT policy has no impacts on the business park rents. However, in the medium and long term, boosted by the new VAT policy, the landlords remain confident about the future prospects of business parks, resulting in a steady increase in rents.”
SUPPLY AND DEMAND
In Q1, a new business park project completed in Shanghai. Located in Zhangjiang Middle Zone and developed by Moonstar, Zhangjiang Cove Park was completed in the quarter, adding 48,461 sqm of office space to the market and pushing up the total inventory of the Shanghai Business Park to 9.66 million sqm.
High-tech enterprises including scientific research, artificial intelligence (AI) and new energy vehicles (NEV) manufacturing had strong leasing demand for office and R&D buildings in business parks. Supported by the government’s financial incentives and the new VAT policy, these enterprises are considering larger office spaces or R&D buildings for business expansion purposes.
Recently, the emerging AI and AI-related companies have expanded rapidly, and the demand for office space has increased from 1,000 sqm to over 2,000 sqm. They prefer to locate their offices in the traditional and well-developed business parks such as Zhangjiang, Jinqiao and Caohejing.
In Q1, Shanghai business park market recorded three en-bloc transactions, of which two were in Pudong Zhangjiang while another one was in Changning Linkong.
GLP acquired Silver Square in Pudong Zhangjiang from Real Power Capital. Located in Zhangjiang East Zone, Silver Square is mainly occupied by IT and technology companies, comprising six buildings with a total gross floor area of 53,795 sqm.
Shengteng World, a business park project located in Zhangjiang South Zone with a total gross floor area of approximately 70,000 sqm, has been sold from Shanda to D&J China.
Vanke purchased Yangtze International Enterprise Plaza from HNA Group in Changning Linkong, comprising two high rise and six multi-level R&D buildings with a total gross floor area of approximately 112,000 sqm.