Future Looks Bright for Towering Achievement

Both the short-term pre-leasing and long-term asset performance prospects of Shanghai Tower remain largely upbeat, industry analysts say, citing mainly the iconic image and strategic location of this new Shanghai landmark.

The 632-meter skyscraper in the heart of Little Lujiazui in the Pudong New Area, which held a topping out ceremony on Saturday to mark the placement of the last beam on the building’s main structure, is set to become China’s tallest building upon its completion in 2015 and will house premium offices, a luxury hotel and top-grade retail spaces, according to Shanghai Tower Construction & Development Co, developer of the 125-story building.

“Despite the projected huge supply of Grade A offices in Shanghai in 2015, which could intensify competition among the landlords and place pressure on office leasing and rentals, we expect Shanghai Tower to benefit from the “cluster effect” of Lujiazui CBD and have a better chance to outperform the market average, given its iconic image, high specification and strategic location,” said Sam Xie, director of research at CB Richard Ellis Shanghai. “In particular, it will remain attractive to financial institutions and corporate headquarters who typically require premium quality space in a top-profile building.”

Shanghai is projected to see a supply peak in 2015 when a total of 2 million square meters of Grade A offices will be released to the market if all pipeline projects are delivered on schedule, of which about a quarter will be in the core area of Pudong, CBRE data showed.

But before that, only a fairly limited supply of Grade A offices, around 100,000 square meters, are due to be released in the area this year and next.

“We expect the vacancy rate in the core area of Pudong to stand at only 6 percent at the end of 2014, which shall to a certain extent facilitate the pre-leasing of Shanghai Tower,” Xie said. “In the long run, with barely any new supply in Little Lujiazui, and Shanghai marching toward its goal to establish itself into an international financial center by 2020, we also expect a steady enhancement of the asset performance of Shanghai Tower.”

Anthony Couse, managing director of Jones Lang LaSalle Shanghai, is similarly optimistic.

“Shanghai Tower, which is built on one of the very few remaining sites in the Lujiazui submarket and supposed to be delivered at a time of very tight supply, will have strong appeal to tenants with both international and domestic companies being its target occupiers,” Couse said. “We expect the submarket of Lujiazui to continue to enjoy strong demand, particularly from domestic firms, over the coming years and Shanghai Tower will be able to maintain pricing power.”

The average office rental in Shanghai dipped 0.1 percent quarter on quarter to 250 yuan (US$40.8) per square meter per month during the April-June period, with rental movement in Puxi and Pudong diverged based on different supply-demand pattern, according to CBRE’s latest research. The average rent in Puxi declined 0.3 percent quarter on quarter mainly due to plenty of new supply and the decentralization trend while tight supply in Pudong drove rents up 0.5 percent from the first quarter.