Covid-19 forces businesses in Shanghai to leave central commerce districts to save rent

Daniel Ren
·3-min read

An increasing number of companies in Shanghai have been relocating away from the main business areas to save office rental costs owing to financial damage caused by the Covid-19 pandemic.

According to property service firm JLL, a gap of 4 yuan (61 US cents) per square metre in daily rental expenses between central business districts (CBDs) and emerging commercial districts has resulted in a rising number of office relocations since the middle of last year. The trend is likely to continue amid the ramped up development of the city’s more business-friendly non-CBD regions.

“Companies affected by the pandemic have considered cutting rental costs to improve their bottom line,” said Huang Lu, head of research at JLL East China. “Fortunately, they could secure quality office space to meet their requirements in non-CBD areas in Shanghai while saving the 4 yuan rental costs.”

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In Lujiazui, a business area known as China’s Wall Street, office rental stands at about 20 yuan per sq m per day.

JLL was unable to say exactly how many office relocations there had been during the period.

Shanghai, the mainland’s commercial and financial capital, reported 1.7 per cent growth in its economic output last year, 0.9 percentage points below the national figure.

Lockdown measures between late January and early March last year caused devastating damage to companies in the commercial sector.

Anecdotal evidence suggests that a wave of business closures took place in the first half of 2020.

Huang said financial services firms and technology start-ups remained bullish about the city’s economic outlook.

Financial firms including banks, securities companies, insurers and fintech businesses occupied 36 per cent of Shanghai’s 14 million sq m of grade A office space at the end of 2020. That was 2 percentage points higher than 2018.

Technology start-ups took up 10 per cent of the city’s prime office in 2020, compared with 7 per cent in 2018.

CBRE said flexible workspace had also mushroomed in Shanghai, hitting 9.1 million sq ft and accounting for 2.6 per cent of the city’s grade A office space.

Being flexible could lead to an average 25 per cent cost saving on rent, according to Colliers International.

At present, more than half of the prime office space in Shanghai is located in outside the CBDs.

Amid the expansion of the city’s subway system, non-CBD areas have seen a surge in the construction of office buildings, offering companies an alternative to established districts such as Lujiazui, Nanjing Road and People’s Square.

Chen Jun, chairman and chief executive of Greenland Hong Kong, the Hong Kong-listed unit of Greenland Holdings, said it is now important to gauge tenants’ demand before making decisions about land purchases and property management.

“In a difficult business environment, accuracy in [decision making] plays a bigger role in company performance,” he said. “We offer the right office workspace and services to companies to help them ease the damages from Covid-19.”

Greenland Hong Kong reported net profit of 3.46 billion yuan in 2020, up 14 per cent on the year.

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