Financial institutions drive demand for office space

Financial institutions are becoming the major driver of demand for premium office space in the city's Lujiazui area, indicating a major shift in the local market.

Lujiazui, the western triangular tip of Pudong District just facing the historic Bund across the Huangpu River, has become a prime location for Shanghai's financial and banking industry.

With China set to open its financial market by the end of the year, international financial institutions are flocking to Shanghai, establishing offices or expanding the business in China, which is boosting demand for premium office space in Shanghai, especially in Lujiazui.

"Many of our clients from the banking sector are searching for suitable offices in Lujiazui," said Anthony Couse, managing director of Jones Lang LaSalle's Shanghai office

HSBC took the lead in snapping up office space in Lujiazui. It bought three floors of the Senmao Building, and renamed the entire building the HSBC Tower six years ago.

Citigroup followed suit two years later. It purchased 22,000 square metres of office space from a local developer, becoming the anchor tenant of a 40-storey office building and owning the right to name it.

Standard Chartered is now trying to catch up with these two major competitors on the mainland, sealing two major property deals this year.

In July, it spent more than US$25 million to purchase four floors of Shanghai's UC Tower in Pudong. Covering over 7,600 square metres, this will easily meet the requirements of its expansion in Shanghai.

At the beginning of this year, the bank sealed a deal worth US$40 million to acquire the naming and usage rights for a new building in the centre of Lujiazui, which will be completed by early 2008.

Meanwhile, a number of smaller lenders such as Singapore-based DBS have also made efforts to prepare for future growth in China.

DBS moved into the Azia Center last September, where it rents more than 4,000 square metres of office space. "We have already put aside some free office space to meet the needs of future growth," said an unnamed DBS staff member.

In the past eight years, the average annual take-up of Grade-A office space in Lujiazui reached some 160,000 square metres, most of which was taken by the financial and banking sector.

But analysts estimate that over the next five years, Lujiazui will see its average take-up rate for office space rise to some 270,000 square metres per year.

Driven by robust demand and record low vacancy, office rents are expected to rise 27 per cent by the end of next year, according to a Jones Lang LaSalle report.

"It is not a surprise to see that the quality offices in Lujiazui will later charge rents of US$1.5 per day per square metre," said Couse.

"With the emergence of Lujiazui, Shanghai will soon have two central business districts and quality office buildings will be decentralized at the same time."

Source: China Daily