The newly published “Outline of Shanghai Master Plan (2016-2040)” emphasises Shanghai’s future position as a global city. Shanghai’s current CBD is largely set and is not enough to accommodate the strong growth in the service sector. The CBD expansion, which has already been set in motion, is a natural evolvement for Shanghai’s office market.

As you may recall, we raised the topic in our white paper “Offices 2020 Shanghai – Double the Stock. Double the Demand” published two years ago. We forecasted that the CBD will expand in Shanghai, meaning some “decentralised” clusters will actually merge into the CBD. Since then, we have continued to witness the trend moving towards this direction.

We want to identify here the first three peripheral decentralised areas – the Railway Station, the North Bund and Pudong Yanggao Rd. These three office clusters are all located only one or two metro stops away from the existing CBD, and have been acknowledged by an increasing number of tenants who are seeking office options in the CBD. There are four main reasons behind this trend:

• Upcoming high-spec projects to raise status of these locations as business addresses. Since 2013, the three clusters mentioned have started to see a significant increase in stock volume and an upgrade in quality with high-spec projects. Such upgrades will continue in the next few years, which will further improve the status of these locations as business addresses.

Figure 1: Grade A office stock in the three emerging CBDs
Source: JLL Research

• Further subway development. The extensions of Line 12 and 13 opened in 4Q2015, linking Railway Station and the North Bund clusters to the core CBD (Nanjing West Road and People Square) with only one or two stops.

• The decentralisation trend especially benefits the submarkets located right outside the existing CBD. For cost saving and expansion purposes, many well-known tenants like WPP, Cardinal Health and Wanda Finance turned to these clusters because they are very close to the CBD and with more affordable rents.

• Other notable changes. The upcoming relocation of Shanghai Stock Exchange and China Financial Futures Exchange to Yanggao Road has attracted some financial institutions to relocate to the area. The merge of Zhabei (consists of the Railway Station) and Jing’an (consists of the Nanjing W. Rd.cluster) districts removed the tax and registration-related obstacles from relocating between the two districts.

As a result, rents of the listed three submarkets have performed strongly. Taking Yanggao Rd. area as an example (see Figure 2), rents are catching up with the neighbouring Zhuyuan CBD, and its growth rate is well above the decentralised market average. In light of these market movements, an increasing number of investors are showing strong interest in the opportunities in these upcoming CBD areas.

Figure 2: Yanggao Rd. rents catching up to CBD rents
Source: JLL Research

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